Generalized Transform Analysis of Affine Processes and Applications in Finance

• 成果类型: Article
• 署名作者: Chen, Hui; Joslin, Scott
• 署名单位: Massachusetts Institute of Technology (MIT); National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhs065
• 发表日期: 2012
• 页码: 2225
• 关键词: term structure; stochastic volatility; consumption; implicit; returns; default; RISK; bond; options; models

摘要

Nonlinearity is an important consideration in many problems of finance and economics, such as pricing securities and solving equilibrium models. This article provides analytical treatment of a general class of nonlinear transforms for processes with tractable conditional characteristic functions. We extend existing results on characteristic function-based transforms to a substantially wider class of nonlinear functions while maintaining low dimensionality by avoiding the need to compute the density function. We illustrate the applications of the generalized transform in pricing defaultable bonds with stochastic recovery. We also use the method to analytically solve a class of general equilibrium models with multiple goods and apply this model to study the effects of time-varying labor income risk on the equity premium.