Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - Deriving preference-free asset prices in a general equilibrium framework
AU - Huang, J
PY - 2000
Y1 - 2000
N2 - In this paper we develop a method for deriving preference-free asset prices in a general equilibrium framework. We show that to obtain preference-free asset prices, it is necessary and sufficient that the equilibrium interest rate, risk premiums, and coefficients of the state variable processes satisfy some partial differential equations. The result can tell us whether an asset pricing model is well constructed so that it is not restricted to certain preferences. It also tells us how to choose appropriate functional forms of risk premiums consistent with many different preferences. Moreover, it tells us the appropriate term structure of (stochastic) interest rates given risk premiums and state variable processes. To illustrate the application of our result, we also give a simple approach to preference-free option prices.
AB - In this paper we develop a method for deriving preference-free asset prices in a general equilibrium framework. We show that to obtain preference-free asset prices, it is necessary and sufficient that the equilibrium interest rate, risk premiums, and coefficients of the state variable processes satisfy some partial differential equations. The result can tell us whether an asset pricing model is well constructed so that it is not restricted to certain preferences. It also tells us how to choose appropriate functional forms of risk premiums consistent with many different preferences. Moreover, it tells us the appropriate term structure of (stochastic) interest rates given risk premiums and state variable processes. To illustrate the application of our result, we also give a simple approach to preference-free option prices.
M3 - Working paper
T3 - Accounting and Finance Working Paper Series
BT - Deriving preference-free asset prices in a general equilibrium framework
PB - The Department of Accounting and Finance
CY - Lancaster University
ER -