General Equilibrium Option Pricing Method Theoretical And Empirical Study
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General Equilibrium Option Pricing Method Theoretical And Empirical Study
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Author : Jian Chen
language : en
Publisher: Springer
Release Date : 2018-04-10
General Equilibrium Option Pricing Method Theoretical And Empirical Study written by Jian Chen and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-04-10 with Business & Economics categories.
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.
Essays On Equilibrium Valuation Of Options Theorem And Empirical Estimates
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Author : Melanie Cao
language : en
Publisher:
Release Date : 1997
Essays On Equilibrium Valuation Of Options Theorem And Empirical Estimates written by Melanie Cao and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with categories.
This thesis consists of three essays which study the valuation of options in an equilibrium framework. The first essay uses a general equilibrium model to study the valuation of options on the market portfolio with predictable returns and stochastic volatility in a complete market. In a closed endowment economy where aggregate dividend is the only source of uncertainty, I investigate why the stock return exhibits certain predictable features. I also examine the equilibrium relationship between the price of the market portfolio and its volatility, as well as the relationship between the spot interest rate and the market volatility. Equilibrium conditions imply that the predictable feature of the market portfolio is induced by the mean-reverting of the rate of dividend growth. It is shown that there is strong interdependence between the stock price process and its volatility process. Using the Euler equation, I derive equilibrium pricing formulas for options on the market portfolio which incorporate both stochastic volatility and stochastic interest rates. Since there is only one source of uncertainty, this model preserves the completeness feature for hedging and risk management purposes. With realistic parameter values, numerical examples show that stochastic volatility and stochastic interest rates are both necessary for correcting the Black-Scholes pricing biases. The second essay focuses on the currency options in an incomplete market where the economy is subject to shocks in aggregate dividend and money supply. The key feature is that the exchange rate exhibits systematic jump risks which should be priced in the currency options. The closed-endowment equilibrium model in the first essay is extended to a small open monetary economy with stochastic jump-diffusion processes for both the money supply and aggregate dividend. It is shown that the exchange rate is affected by both government monetary policies and aggregate dividends. Since the jump in the exchange rate is correlated with aggregate consumption, the jump risk in the exchange rate derived from aggregate consumption must be priced by means of utility maximization. I further derive the foreign agents' risk-neutral valuation of the European currency option and provide restrictions that ensure the law of one price in currency option pricing. In general, these restrictions depend on the agent's risk preference. The objective of the third essay is to empirically study the existence of systematic jump risks in exchange rates and analyze their importance for currency option pricing. The empirical study is based on the theoretical model studied in the second essay, which argues that exchange rates are inherently correlated with the market and so must exhibit systematic jump risks. The third essay uses the maximum-likelihood method to estimate the joint distribution of exchange rates and the price of the market portfolio. Empirical results show that it is important to incorporate both systematic and non-systematic jump components in exchange rates in order to correctly price currency options.
Advanced Asset Pricing Theory
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Author : Ma Chenghu
language : en
Publisher: World Scientific Publishing Company
Release Date : 2011-01-03
Advanced Asset Pricing Theory written by Ma Chenghu and has been published by World Scientific Publishing Company this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-01-03 with Business & Economics categories.
This book provides a broad introduction of modern asset pricing theory with equal treatments for both discrete-time and continuous-time modeling. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework.The analyses and coverage are up to date, comprehensive and in-depth. Topics include microeconomic foundation of asset pricing theory, the no-arbitrage principle and fundamental theorem, risk measurement and risk management, sequential portfolio choice, equity premium decomposition, option pricing, bond pricing and term structure of interest rates. The merits and limitations are expounded with respect to allocation and information market efficiency, along with the classical expectations hypothesis concerning the information content of yield curve and bond prices. Efforts are also made towards the resolution of several well-documented puzzles in empirical finance, which include the equity premium puzzle, the risk free rate puzzle, and the money-ness bias phenomenon of Black-Scholes option pricing model.The theory is self-contained and unified in presentation. The inclusion of proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory makes an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The explanations are detailed enough to capture the interest of those curious readers, and complete enough to provide necessary background material needed to explore further the subject and research literature.
A General Equilibrium Option Pricing Model
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Author : Richard James Rendleman
language : en
Publisher:
Release Date : 1980
A General Equilibrium Option Pricing Model written by Richard James Rendleman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1980 with Restricted stock options categories.
Price Uncertainty And Derivative Securities In A General Equilibrium Model
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Author : Graciela Chichilnisky
language : en
Publisher:
Release Date : 1992
Price Uncertainty And Derivative Securities In A General Equilibrium Model written by Graciela Chichilnisky and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992 with Economics categories.
A General Equilibrium Option Pricing Model
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Author : Richard J. Rendleman (Jr.)
language : en
Publisher:
Release Date : 1976
A General Equilibrium Option Pricing Model written by Richard J. Rendleman (Jr.) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1976 with Stock options categories.
Applying General Equilibrium
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Author : John B. Shoven
language : en
Publisher: Cambridge University Press
Release Date : 1992-05-29
Applying General Equilibrium written by John B. Shoven and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992-05-29 with Business & Economics categories.
The aim of this book is to make more widely available a body of recent research activity that has become known as applied general equilibrium analysis. The central idea underlying this work is to convert the Walrasian general equilibrium structure (formalized in the 1950s by Kenneth Arrow, Gerard Debreu and others) from an abstract representation of an economy into realistic models of actual economies. Numerical, empirically based general equilibrium models can then be used to evaluate concrete policy options by specifying production and demand parameters and incorporating data reflective of real economies. Shoven and Whalley describe all aspects of developing applied general equilibrium models, including developing an appropriate equilibrium structure, calibrating the model, compiling counterfactual equilibria, and interpreting results. The authors contend that the Walrasian general equilibrium model provides an ideal framework for appraising the effects of policy changes on resource allocation, assessing who gains and who loses, and the policy impacts not well covered by empirical macro models. The applications in the book illustrate a number of ways in which fresh insights are provided in long standing policy controversies.
Option Pricing With A Dividend General Equilibrium Model
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Author : K. M. Chourdakis
language : en
Publisher:
Release Date : 2000
Option Pricing With A Dividend General Equilibrium Model written by K. M. Chourdakis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with Economics categories.
Option Pricing With A Dividend General Equilibrium Model
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Author : Kyriakos Chourdakis
language : en
Publisher:
Release Date : 2002
Option Pricing With A Dividend General Equilibrium Model written by Kyriakos Chourdakis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
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.
Dynamic Macroeconomic Analysis
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Author : Sumru Altug
language : en
Publisher: Cambridge University Press
Release Date : 2003-11-20
Dynamic Macroeconomic Analysis written by Sumru Altug and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-11-20 with Business & Economics categories.
Dynamic stochastic general equilibrium (DSGE) models have begun to dominate the field of macroeconomic theory and policy-making. These models describe the evolution of macroeconomic activity as a recursive sequence of outcomes based upon the optimal decision rules of rational households, firms and policy-makers. Whilst posing a micro-founded dynamic optimisation problem for agents under uncertainty, such models have been shown to be both analytically tractable and sufficiently rich for meaningful policy analysis in a wide class of macroeconomic problems, for example, monetary and fiscal policy, economic cycles and growth and capital flows. This volume collects specially commissioned papers from leading researchers, which pull together some of the key results in diverse areas. This book will promote research using optimising models and inform researchers, post-graduate students and economists in policy-oriented organisations of some of the key findings and policy implications.