STOCHASTIC DEFLATOR FOR AN ECONOMIC SCENARIO GENERATOR WITH FIVE FACTORS
Po-Keng ChengNCU 10:00-11:30 鴻經館M107Abstract
In this paper, we implement a stochastic deflator with five economic and
financial risk factors: interest rates, market price of risk, stock prices,
default intensities, and convenience yields. We examine the deflator with
different financial assets, such as stocks, zero‐coupon bonds,
vanilla options, and corporate coupon bonds. We find required regularity
conditions to implement our stochastic deflator. Our numerical results show the
reliability of the deflator approach in pricing financial derivatives.