General Equilibrium Option Pricing Method

Theoretical and Empirical Study

By: Jian Chen

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Hardcover | 20 April 2018

At a Glance

Hardcover
178 Pages

Dimensions(cm)
23.5 x 15.49 x 1.12

Hardcover

$169.00

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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.

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