Continuous equilibrium in affine and information-based capital asset pricing models

DOI10.1007/S10436-012-0216-ZMaRDI QIDQ470686zbMATHOpenAlexFDO

Authors Ulrich Horst, Michael Kupper, Andrea Macrina, Christoph Mainberger

Publication date 12 November 2014

Published in Annals of Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1201.1840

zbMATH Keywords

CAPMimplied volatilityexponential utilityaffine processescontinuous-time equilibriuminformation-based asset pricing

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have exponential utility functions and the individual endowments are spanned by the securities, an equilibrium exists and the agents' optimal trading strategies are constant. Affine processes, and the theory of information-based asset pricing are used to model the endogenous asset price dynamics and the terminal payoff. The derived semi-explicit pricing formulae are applied to numerically analyze the impact of the agents' risk aversion on the implied volatility of simultaneously-traded European-style options.

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Cited in

(2)

• An Intertemporal General Equilibrium Asset Pricing Model: The Case of Diffusion Information
• The Consumption-Based Capital Asset Pricing Model

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