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

Horst, U; Kupper, M; Macrina, A; Mainberger, C; (2013) Continuous equilibrium in affine and information-based capital asset pricing models. Annals of Finance , 9 (4) 725- 755. 10.1007/s10436-012-0216-z. Green open access

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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.

Type: Article
Title: Continuous equilibrium in affine and information-based capital asset pricing models
Open access status: An open access version is available from UCL Discovery
DOI: 10.1007/s10436-012-0216-z
Publisher version: http://dx.doi.org/10.1007/s10436-012-0216-z
Language: English
Additional information: "The final publication is available at Springer via http://dx.doi.org/10.1007/s10436-012-0216-z” 24 pages, 4 figures
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics
URI: https://discovery.ucl.ac.uk/id/eprint/1376803
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