A new method to retrieve the risk-neutral probability measure from observed option prices is developed and a closed form pricing formula for European options is obtained by employing a modified Gram-Charlier series expansion, known as the Gauss-Hermite expansion. This expansion converges for...

In this paper we develop a one-factor non-affine stochastic volatility option pricing model where the dynamics of the underlying is endogenously determined from micro-foundations. The interaction and herding of the agents trading the underlying asset induce an amplification of the volatility of...

In the context of a continuous-time pure-exchange economy model, the paper develops a novel methodology, based on measure-valued stochastic processes, for analyzing the evolution of heterogeneity in a tractable manner and studying its impact on asset prices. The agents in the economy differ with...

In this article, we generalize the classical Edgeworth series expansion used in the option pricing literature. We obtain a closed-form pricing formula for European options by employing a generalized Hermite expansion for the risk-neutral density. The main advantage of the generalized expansion...