[2008년 제 1차] Closed-form Physical Densities : An Extension to a
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2008-02-25
Liu et al. (2007) derived closed-form physical densities (PDs) under a constant rela-tive risk aversion utility assumption when asset prices follow a mixture of lognormals or a generalized beta distribution. In this paper, we extend Liu et al.’s (2007) attempt to derive closed-form PDs into quite general classes, where we have a closed-form charac-teristic function of the log asset prices under the risk-neutral measure. The stochastic volatility with jumps model and models with …nite moment log-stable processes or Levy processes are examples where this new method is applicable to deriving closed-form PDs. Considering that models having closed-form characteristic functions are becoming more popular, our results have importance in practical applications.
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