A Linear Relationship between Market Prices of Risks and Risk Aversion in Complete Stochastic Volatility Models-Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Research

Home -> Research -> Working Papers -> Content

作者	Qian Han
正文	Considering a production economy with an arbitrary von-Neumann Morgenstern utility, this paper derives a general equilibrium relationship between the market prices of risks and market risk aversion under a continuous time stochastic volatility model completed by liquidly traded options. The derived relation shows that in equilibrium the risk aversion should be a linear combination of the market price of asset risk and market price of orthogonal risk. Construction of a daily market risk aversion index is proposed to help practitioners with better risk management.
JEL-Codes：
关键词：