Continuous equilibrium under base preferences and attainable initial endowments

Arbeitspapier

We consider a full equilibrium model in continuous time comprising a finite number of agents and tradable securities.We show that, if the agents' endowments are spanned by the securities and if the agents have entropic utilities, 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. Semi-explicit pricing formulae are obtained and applied to numerically analyze the impact of the agents' risk aversion on the implied volatility of simultaneously-traded European-style options.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2011-082

Classification and Topics

• Classification: Wirtschaft ; Existence and Stability Conditions of Equilibrium ; Incomplete Markets ; General Equilibrium and Disequilibrium: Financial Markets
• Subject: continuous-time equilibrium ; CAPM ; affine processes ; information-based asset pricing ; implied volatility ; Optionspreistheorie ; Kapitalmarkttheorie ; Wertpapierhandel ; Gleichgewicht ; Capital Asset Pricing Model ; Volatilität ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Horst, Ulrich ; Kupper, Michael ; Macrina, Andrea ; Mainberger, Christoph
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/56695
• Last update: 10.03.2025, 11:45 AM CET