Derivative Pricing With Wishart Multivariate Stochastic Volatility

Bibliographic Data

ID19420214
AuthorsChristian Gouriéroux (University of Toronto), Razvan Sufana (York University)
Year2010
Volume28
Issue3
Pages438-451
Publication date2010-07-01
Open AccessNo
TypeARTICLE
VenueJournal of Business and Economic Statistics (JOURNAL)
Journal identifiersISSN: 0735-0015 • E-ISSN: 1537-2707
PublisherInforma UK Limited (PUBLISHER • GB)
DOI10.1198/jbes.2009.08105
OpenAlexW1996037815
LanguageEN
Citations received1
References cited23

This paper deals with the pricing of derivatives written on several underlying assets or factors satisfying a multivariate model with Wishart stochastic volatility matrix. This multivariate stochastic volatility model leads to a closed-form solution for the conditional Laplace transform, and quasi-explicit solutions for derivative prices written on more than one asset or underlying factor. Two examples are presented: (i) a multiasset extension of the stochastic volatility model introduced by Heston (1993), and (ii) a model for credit risk analysis that extends the model of Merton (1974) to a framework with stochastic firm liability, stochastic volatility, and several firms. A bivariate version of the stochastic volatility model is estimated using stock prices and moment conditions derived from the joint unconditional Laplace transform of the stock returns

Bivariate analysis · Constant elasticity of variance model · Econometrics · Economics · Forward volatility · Heston model · Implied volatility · Laplace transform · Multivariate statistics · SABR volatility model · Statistics · Stochastic volatility · Volatility smile · Wishart distribution · Credit Risk and Financial Regulations · Financial Risk and Volatility Modeling · Insurance and Financial Risk Management · Mathematics

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