Asset Pricing under Jump Diffusion
In this paper,we model a stock price as a production process in a production economy with jump di?usion and establish a general equilibrium model for the equity premium. We propose a pricing kernel and use it to price options. We prove that the modified Mertons (1976) summation series formula for the option price is equivalent to Bakshi and Madans (2000) inverse Fourier transformation formula. We then present analytical expressions for the return distributions in the physical and the risk-neutral measures. We find out that our model explains very well the empirical evidence on the negative risk-neutral skewness and the relation between the moments of the risk-neutral and physical distributions. The model also explains well the empirical evidence on the negative excess return of a Delta-hedged option portfolio.
Asset pricing Jump diffusion Pricing kernel Option pricing
Jin E.Zhang Huimin Zhao
School of Economics and Finance and School of Business The University of Hong Kong Pokfulam Road,Hon School of Economics and Finance The University of Hong Kong Pokfulam Road,Hong Kong
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）