General Equilibrium Option Pricing Method: Theoretical and Empirical Study

• Main Author: Chen, Jian (Author, http://id.loc.gov/vocabulary/relators/aut)
• Corporate Author: SpringerLink (Online service)
• Format: Electronic eBook
• Language: English
• Published: Singapore : Springer Singapore : Imprint: Springer, 2018.
• Edition: 1st ed. 2018.
• Subjects: Finance, Public.; Macroeconomics.; Economic theory.; Public Finance.; Macroeconomics/Monetary Economics//Financial Economics.; Economic Theory/Quantitative Economics/Mathematical Methods.
• Physical Description: XI, 164 p. 31 illus., 10 illus. in color. online resource.
• ISBN: 9789811074288
• DOI: 10.1007/978-981-10-7428-8

This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.