The Term Structure of Sharpe Ratios and Arbitrage-Free Asset Pricing in Continuous Time

Arbeitspapier

Recent empirical studies suggest a downward sloping term structure of Sharpe ratios. We present a theoretical framework in continuous time that can cope with such a non-flat forward curve of risk prices. The approach departs from an arbitrage-free and incomplete market setting when different pricing measures are possible. Involved pricing measures now depend on the time of evaluation or the maturity of payoffs. This results in a time inconsistent pricing scheme. The dynamics can be captured by a time-delayed backward stochastic Volterra integral equation, which to the best of our knowledge, has not yet been studied.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 72

Classification and Topics

• Classification: Wirtschaft
• Subject: term structures ; sharpe ratio ; incomplete markets ; asset pricing ; time inconsistency ; arbitrage ; (time-delayed) volterra equations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beissner, Patrick ; Rosazza Gianin, Emanuela
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
• (where): München und Berlin
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/185742
• Last update: 10.03.2025, 11:44 AM CET