ACADSTAFF UGM
| Title | : | Comparing Merton model and Gram-Charlier model to capture skewness and kurtosis on bond performance |
| Author | : |
Dr. Abdurakhman (1) DI ASIH I MARUDDANI (2) |
| Date | : | 1 2019 |
| Keyword | : | Bond Valuation, Merton Jump Diffusion,Gram-Charlier Bond Valuation, Merton Jump Diffusion,Gram-Charlier |
| Abstract | : | Abstract. The existence of skewness and kurtosis in finance data distribution is as a generalization of the normal density. Non-normal skewness and kurtosis of underlying asset of bond issuer significantly contribute to the phenomenon of volatility smile. Merton jump diffusion model is one of the first beyond Black-Scholes model in the sense that it tries to capture the effect of skewness and kurtosis of the asset prices density by a simple addition of a compound Poisson jump process. Another approach to consider the effect of skewness and kurtosis in asset prices for bond valuation is the Gram-Charlier (G-C) expansion. Hermite polynomial is used to get an expansion of the probability distribution in G-C method. In this paper we compare Merton Jump Diffusion (MJD) Model and G-C model in the term of equity and default probability. The result showed that G-C model is more consistent than MJD model when the skewness and kurtosis are taken into account. |
| Group of Knowledge | : | Statistik |
| Original Language | : | English |
| Level | : | Internasional |
| Status | : |
Published
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