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Preferences, Lévy Jumps and Option Pricing

Id：2088 Date：20131014 Status：published ClickTimes：
作者Chenghu Ma
正文This paper derives an equilibrium formula for pricing European options and other contingent claims which allows incorporating impacts of several important economic variable on security prices including, among others, representative agent preferences, future volatility and rare jump events. The derived formulae is general and flexible enough to include some important option pricing formulae in the literature, such as Black-Scholes, Naik-Lee, Cox-Ross and Merton option pricing formulae. The existence of jump risk as a potential explanation of the moneyness biases associated with the Black-Scholes model is explored.
JEL-Codes：G10, G11, G12, G13
关键词：equilibrium option pricing, recursive utility, Levy jumps.
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