Option Prices Sustained by Risk-Preferences
We investigate the preference and distribution restrictions that underlie explicit risk-neutral option valuation equations. We establish new sufficient conditions in terms of utility functions and joint distributions of assets' payoffs and state variables for these models to hold in equilibrium economies where markets are dynamically incomplete. In our models, both the marginal and conditional distributions of wealth play relevant roles in obtaining the pricing kernel implicit in the model. This result shows no straightforward link between the Black-Scholes model and constant proportional risk-aversion preferences. We introduce and investigate many univariate and multivariate option pricing models.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1683-1708. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.