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Leverage and Feedback Eects on Multifactor Wishart Stochastic Volatility for Option Pricing

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Asai, Manabu and McAleer, Michael (2013) Leverage and Feedback Eects on Multifactor Wishart Stochastic Volatility for Option Pricing. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 02, 2013, ] (Unpublished)

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Official URL: http://eprints.ucm.es/17700/


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Abstract

The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diusion process which accommodates leverage, feedback eects and multifactor for the covariance process. The paper gives the closed-form solution for the conditional and unconditional Laplace transform of the AMWSV models. The paper also suggests estimating the AMWSV model by the generalized method of moments using information not only of stock prices but also of realized volatilities and covolatilities. The empirical results for the bivariate data of the NASDAQ 100 and S&P 500 indices show that the general AMWSV model is preferred among several nested models.


Item Type:Working Paper or Technical Report
Additional Information:

The authors are most grateful to Yoshi Baba and Christian Hafner for very helpful comments and suggestions.
The rst author acknowledges the nancial support of the Japan Ministry of Education, Culture, Sports, Science
and Technology, Japan Society for the Promotion of Science, and Australian Academy of Science. The second
author is most grateful for the nancial support of the Australian Research Council, National Science Council,
Taiwan, and the Japan Society for the Promotion of Science. Address for correspondence: Faculty of Economics,
Soka University, 1-236 Tangi-cho, Hachioji, Tokyo 192-8577, Japan.

Uncontrolled Keywords:Multivariate Stochastic Volatility; Wishart Process; Leverage Eects; Feedback Effects; Multifactor Model; Option Pricing.
Subjects:Social sciences > Economics > Econometrics
JEL:C32, C51, G13
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2013
Number:02
ID Code:17700
Deposited On:15 Jan 2013 15:33
Last Modified:29 May 2018 09:05

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