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The Comparative Statics of Equilibrium Derivative Prices

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  • Masamitsu Ohnishi

    ()
    (Graduate School of Economics, Osaka University; Daiwa Securities Chair, Graduate School of Economics, Kyoto University)

  • Yusuke Osaki

    (Graduate School of Economics, Osaka University)

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    Abstract

    We examine the conditions for preferences and risks that guarantee monotonicity of equilibrium derivative prices. In a Lucas economy with a derivative, we derive the equilibrium derivative price under expectation with respect to risk-neutral probability, and analyze comparative statics on the equilibrium derivative price based on the risk-neutral probability.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0419.pdf
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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 04-19.

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    Length: 13 pages
    Date of creation: Nov 2004
    Date of revision:
    Handle: RePEc:osk:wpaper:0419

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Related research

    Keywords: Equilibrium Derivative Price; First-order Stochastic Dominance; Noise Risk; Risk-Neutral Probability.;

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    1. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    2. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers 0099, National Bureau of Economic Research, Inc.
    3. Franke, Gunter & Stapleton, Richard C. & Subrahmanyam, Marti G., 1998. "Who Buys and Who Sells Options: The Role of Options in an Economy with Background Risk," Journal of Economic Theory, Elsevier, vol. 82(1), pages 89-109, September.
    4. Landsberger, Michael & Meilijson, Isaac, 1990. "Demand for risky financial assets: A portfolio analysis," Journal of Economic Theory, Elsevier, vol. 50(1), pages 204-213, February.
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    6. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    7. Gollier Christian, 1995. "The Comparative Statics of Changes in Risk Revisited," Journal of Economic Theory, Elsevier, vol. 66(2), pages 522-535, August.
    8. Nachman, David C., 1982. "Preservation of "more risk averse" under expectations," Journal of Economic Theory, Elsevier, vol. 28(2), pages 361-368, December.
    9. Kihlstrom, Richard E & Romer, David & Williams, Steve, 1981. "Risk Aversion with Random Initial Wealth," Econometrica, Econometric Society, vol. 49(4), pages 911-20, June.
    10. Gollier, Christian & Schlesinger, Harris, 1996. "Portfolio choice under noisy asset returns," Economics Letters, Elsevier, vol. 53(1), pages 47-51, October.
    11. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    12. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
    13. Harris Schlesinger & Christian Gollier, 2001. "Changes in Risk and Asset Prices," CESifo Working Paper Series 443, CESifo Group Munich.
    14. Paul L. McEntire, 1984. "Portfolio Theory for Independent Assets," Management Science, INFORMS, vol. 30(8), pages 952-963, August.
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