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General Equilibrium Stock Index Futures Pricing Allowing for Event Risk

Author

Listed:
  • Simon H. Yen

    (Department of Finance, National Chengchi University, Taiwan)

  • Jai Jen Wang

    (Department of Finance, Feng Chia University, Taiwan)

Abstract

This study develops a new futures pricing model and derives its analytic solution. Comparative static and simulation results are also presented. Under this general equilibrium framework, we find that bounded degrees of state variables in the broad economy determine co-varying extents among various important market variables. However, increasing event risk, including the sizes of occurrence probability and corresponding impulse effects, makes their analysis intractable.

Suggested Citation

  • Simon H. Yen & Jai Jen Wang, 2007. "General Equilibrium Stock Index Futures Pricing Allowing for Event Risk," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 6(2), pages 103-119, August.
    • Handle: RePEc:ijb:journl:v:6:y:2007:i:2:p:103-119
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    general equilibrium model; event risk; intertemporal futures pricing;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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