Equilibrium Models and Option Prices PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Equilibrium Models and Option Prices PDF full book. Access full book title Equilibrium Models and Option Prices by Heber Farnsworth. Download full books in PDF and EPUB format.
Author: Heber Farnsworth
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
Get Book Here
Book Description
In an equilibrium framework the dynamics of the aggregate dividend are taken as given and the volatility of the wealth portfolio is determined by the prices of risk in the model. Since option prices depend strongly on volatility they are very informative about these risk prices. We use this observation to compare the pricing of S&P 500 options to a model in which preferences are recursive and aggregate consumption has stochastic growth and volatility. We find that the pricing of the risk of shocks to the growth rate of consumption is inconsistent with a model in which the representative agent has isoelastic recursive utility.
Author: Heber Farnsworth
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
Get Book Here
Book Description
In an equilibrium framework the dynamics of the aggregate dividend are taken as given and the volatility of the wealth portfolio is determined by the prices of risk in the model. Since option prices depend strongly on volatility they are very informative about these risk prices. We use this observation to compare the pricing of S&P 500 options to a model in which preferences are recursive and aggregate consumption has stochastic growth and volatility. We find that the pricing of the risk of shocks to the growth rate of consumption is inconsistent with a model in which the representative agent has isoelastic recursive utility.
Author: Jian Chen
Publisher: Springer
ISBN: 9811074283
Category : Business & Economics
Languages : en
Pages : 163
Get Book Here
Book Description
This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
Author: Kyriakos Chourdakis
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
Get Book Here
Book Description
This paper derives a general equilibrium option-pricing model for a European call assuming that the economy is exogenously driven by a dividend process following Hamilton's (1989) Markov regime switching model. The derived formula is used to investigate if the European call option prices are consistently priced with the stock market prices. This is done by obtaining the implied risk aversion preferences, based on traded option prices data.
Author: Mukarram Attari
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
Get Book Here
Book Description
This paper obtains equilibrium interest rate option prices for discontinuous short-term interest rate processes. The prices are first obtained for a general distribution of jump sizes using a process with a number of fixed sized jumps. The option price is the expectation, over the number and timing of jumps, of the option price given the number and timing of the jumps. This is similar in form to Merton's jump-diffusion option pricing formula for stock options. The differences are that (i) this paper does not need the assumption that jump risk is not priced and (ii) the timing of the jumps is also important. The pricing formulas are then used to obtain option prices when the jump distribution is known to be one of the continuous distributions. The commonly used jump-diffusion and stochastic volatility diffusion option prices can be obtained as limiting cases. The paper shows how portfolios to hedge derivative securities can be built.
Author: Richard J. Rendleman (Jr.)
Publisher:
ISBN:
Category : Stock options
Languages : en
Pages : 306
Get Book Here
Book Description
Author: K. M. Chourdakis
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 31
Get Book Here
Book Description
Author: Stylianos Perrakis
Publisher: Springer
ISBN: 3030115909
Category : Business & Economics
Languages : en
Pages : 277
Get Book Here
Book Description
This book illustrates the application of the economic concept of stochastic dominance to option markets and presents an alternative option pricing paradigm to the prevailing no arbitrage simultaneous equilibrium in the frictionless underlying and option markets. This new methodology was developed primarily by the author, working independently or jointly with other co-authors, over the course of more than thirty years. Among others, it yields the fundamental Black-Scholes-Merton option value when markets are complete, presents a new approach to the pricing of rare event risk, and uncovers option mispricing that leads to tradeable strategies in the presence of transaction costs. In the latter case it shows how a utility-maximizing investor trading in the market and a riskless bond, subject to proportional transaction costs, can increase his/her expected utility by overlaying a zero-net-cost portfolio of options bought at their ask price and written at their bid price, irrespective of the specific form of the utility function. The book contains a unified presentation of these methods and results, making it a highly readable supplement for educators and sophisticated professionals working in the popular field of option pricing. It also features a foreword by George Constantinides, the Leo Melamed Professor of Finance at the Booth School of Business, University of Chicago, USA, who was a co-author in several parts of the book.
Author: Dietmar Leisen
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
Get Book Here
Book Description
This paper addresses the questions who is buying and who is selling options on a stock, the optimal position to hold, and how this affects the price. The individual demand functions and the equilibrium allocation are derived using an asymptotically valid expansion. Trading occurs only at discrete dates; the option does not have to complete the market. The paper also discusses the conditions under which trade results, the importance of heterogeneity for trade, when preferences become irrelevant to price options, and the case in which there is only a spanning demand, but no risk-sharing demand in options.
Author: Massimo Guidolin
Publisher:
ISBN:
Category : Bayesian statistical decision theory
Languages : en
Pages : 70
Get Book Here
Book Description
Author: Warren Bernard Bailey
Publisher:
ISBN:
Category : Stock price indexes
Languages : en
Pages : 22
Get Book Here
Book Description
