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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)

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.

Suggested Citation

  • Jun Sekine, 2008. "A Note On The Risk-Premium Process In An Equilibrium," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(07), pages 705-716.
    • Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:07:n:s0219024908005007
    DOI: 10.1142/S0219024908005007
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    References listed on IDEAS

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    1. Andrea Pascucci & Paolo Foschi, 2005. "Calibration of the Hobson&Rogers model: empirical tests," Finance 0509020, University Library of Munich, Germany.
    2. Paolo Foschi & Andrea Pascucci, 2008. "Path dependent volatility," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 31(1), pages 13-32, May.
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