Pricing and Inference with Mixtures of Conditionally Normal Processes
H. Bertholon,
Alain Monfort and
Fulvio Pegoraro ()
Working papers from Banque de France
Abstract:
We consider the problems of derivative pricing and inference when the stochastic discount factor has an exponential-affine form and the geometric return of the underlying asset has a dynamics characterized by a mixture of conditionally Normal processes. We consider both the static case in which the underlying process is a white noise distributed as a mixture of Gaussian distributions (including extreme risks and jump diffusions) and the dynamic case in which the underlying process is conditionally distributed as a mixture of Gaussian laws. Semi-parametric, non parametric and Switching Regime situations are also considered. In all cases, the risk-neutral processes and explicit pricing formulas are obtained.
Keywords: Derivative Pricing; Stochastic Discount Factor; Implied Volatility, Mixture of Normal Distributions; Mixture of Conditionally Normal Processes; Nonparametric Kernel Estimation; Mixed-Normal GARCH Processes; Switching Regime Models. (search for similar items in EconPapers)
JEL-codes: C1 C5 G1 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2007
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Citations: View citations in EconPapers (4)
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Related works:
Working Paper: Pricing and Inference with Mixtures of Conditionally Normal Processes (2006) 
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:188
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