Derivative Pricing with Multivariate Stochastic Volatility : Application to Credit Risk
This paper extends to the multiasset framework the closed-form solution for options withstochastic volatility derived in Heston (1993) and Ball and Roma (1994). This extensionintroduces a risk premium in the return equation and considers Wishart dynamics for theprocess of the stochastic volatility matrix, which is the multiasset analogue of the model ofCox, Ingersoll, and Ross (1985). This approach is used to extend Merton’s model (Merton(1974)) for corporate default to a framework with stochastic liability, stochastic volatilityand several firms.
Year of publication: |
2004
|
---|---|
Authors: | Gourieroux, Christian ; Sufana, Razvan |
Institutions: | Centre de Recherche en Économie et Statistique (CREST), Groupe des Écoles Nationales d'Économie et Statistique (GENES) |
Saved in:
freely available
Saved in favorites
Similar items by person
-
A Classification of Two Factor Affine Diffusion Term Structure Models
Gourieroux, Christian, (2005)
-
International Money and Stock Market Contingent Claims
Gourieroux, Christian, (2005)
-
The Wishart Autoregressive of Multivariate Stochastic Volatility
Gourieroux, Christian, (2004)
- More ...