TY  - JOUR
AU  - Asea,Patrick K.
AU  - Ncube,Mthuli
TI  - Heterogeneous Information Arrival and Option Pricing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5950
PY  - 1997
Y2  - March 1997
UR  - http://www.nber.org/papers/w5950
L1  - http://www.nber.org/papers/w5950.pdf
N1  - Author contact info:
Patrick Asea
Department of Economics
UCLA
405 Hilgard Avenue
Los Angeles, CA  90024
E-Mail: pasea@uneca.org

Mthuli Ncube
African Development Bank
E-Mail: f23r23@gmail.com
AB  - 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.
ER  -