Equilibrium asset and option pricing under jump-diffusion model with stochastic volatility (Q2319098)

Summary: We study the equity premium and option pricing under jump-diffusion model with stochastic volatility based on the model in [\textit{J. E. Zhang} et al., Math. Finance 22, No. 3, 538--568 (2012; Zbl 1278.91069)]. We obtain the pricing kernel which acts like the physical and risk-neutral densities and the moments in the economy. Moreover, the exact expression of option valuation is derived by the Fourier transformation method. We also discuss the relationship of central moments between the physical measure and the risk-neutral measure. Our numerical results show that our model is more realistic than the previous model.