Titlebook: General Equilibrium Option Pricing Method: Theoretical and Empirical Study; Jian Chen Book 2018 Xiamen University Press and Springer Natur

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Book 2018ile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require

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Péter Baranyi,Adam Csapo,Gyula Sallaianc Econom, 71:13–141,2004) further introduce a time-changed Lévy process that can be used to generate a wide class of jump-diffusion stochastic volatility models such as the variance-gamma jump model of Madan (Eur Financ Rev, 4:125–144, 1998) and the log stable model of Carr and Wu (J Financ, 58:753–777, 2003).

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han the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns..978-981-13-3950-9978-981-10-7428-8

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https://doi.org/10.1057/978-1-137-57895-26, 2000; Bakshi et al. 1997; Pan 2002; Huang and Wu 2004; Carr and Wu 2004; Santa-Clara and Yan 2010)). These previous papers, however, price options under a partial equilibrium framework and assume an underlying return dynamics given exogenously.

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Risk Aversion Estimated from Volatility Spreadtur Mark, 22, 627–648, 2002), Barndorff-Nielsen, Shephard (J R Stat Soc Ser B, 64, 2002), Barndorff-Nielsen, Shephard (Econometrica, 72, 885–925, 2004a), and Ebens (Realized stock volatility, working Paper, Johns Hopkins University, 1999). In parallel to the realized volatility measure, another stra