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A Note On The Risk-Premium Process In An Equilibrium

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  • JUN SEKINE

    ()
    (Institute of Economic Research, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan)

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    Abstract

    Results in He–Leland (1993) are extended and properties of the risk-premium process in an equilibrium are examined in a pure exchange economy with a representative agent: for example, (i) the risk-premium process is characterized by using a martingale representation of the reciprocal of a terminal marginal utility, (ii) it is expressed as a (conditional) expected value including the relative risk aversion coefficient of a terminal utility and the Jacobian matrix process of the state variables, and, (iii) a "mean-reverting" property relates to the monotonic decreasing property of the relative risk aversion coefficient.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 11 (2008)
    Issue (Month): 07 ()
    Pages: 705-716

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    Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:07:p:705-716

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    Related research

    Keywords: Equilibrium; asset price process; risk-premium; volatility; relative risk aversion coefficient;

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