@techreport{NBERw5950,
 title = "Heterogeneous Information Arrival and Option Pricing",
 author = "Patrick K. Asea and Mthuli Ncube",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5950",
 year = "1997",
 month = "March",
 URL = "http://www.nber.org/papers/w5950",
 abstract = {We model the arrival of heterogeneous information in a financial market as a doubly-stochastic Poisson process (DSPP).  A DSPP is a member of the family of Poisson processes in which the mean value of the process itself is governed by a stochastic mechanism.  We explore the implications for pricing stock, index and foreign currency options of the assumption that the under- lying security evolves as a mixed diffusion DSPP.  We derive an intertemporal CAPM and demonstrate that accounting for heterogeneous information arrival may minimize the ubiquitous pricing bias 'smile-effect' of standard option pricing models.  We propose a conceptually simple but numerically intensive maximum likelihood estimator of the parameters of a DSPP.  A simulation study verifies the adequacy of the asymptotic approximations in finite samples.},
}