General Equilibrium Option Pricing Method: Theoretical and Empirical Study
ISBN:
9789811339509
Auflage:
Softcover reprint of the original 1st ed. 2018
Verlag:
Springer Singapore
Land des Verlags:
Malaysia
Erscheinungsdatum:
29.12.2018
Format:
Softcover
Seitenanzahl:
164
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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.
