English, Article, Journal or magazine article edition: An Alternative Model for Contingent Claims Gurdip S. Bakshi and; Zhiwu Chen

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/69258
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • An Alternative Model for Contingent Claims
Author
  • Gurdip S. Bakshi and
  • Zhiwu Chen
Physical Description
  • preprint
Notes
  • The fundamental valuation equation of Cox, Ingersoll and Ross was expressed in terms of the indirect utility of wealth function. As closed-form solution for the indirect utility is generally unobtainable when investment opportunities are stochastic, existing contingent claims models involving general asset price processes were almost all derived under the restrictive log utility assumption. An alternative valuation equation is proposed here that depends only on the direct utility function. This alternative valuation model is applied to derive closed-form solutions for bonds, bond options, individual stocks, and stock options under both power utility and exponential utility functions. Allowable processes for aggregate output, firms' dividends, and state variables are quite general and empirically plausible. The resulting interest rates and stock price dynamics have many empirically plausible properties. Our option pricing model with stochastic volatility and stochastic interest rates has most existing models nested in it. This means most existing models also hold for economies with power or exponential utility functions. The option pricing model is also shown to have the ability to reconcile certain puzzling empirical regularities such as the volatility smile.
  • RePEc:wop:ohsrfe:9504
Language
  • English
Contributed by
OAIster

Get this edition

Other links

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment