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Title:Continuous equilibrium under base preferences and attainable initial endowments PDF Logo
Authors:Horst, Ulrich
Kupper, Michael
Macrina, Andrea
Mainberger, Christoph
Issue Date:2011
Series/Report no.:SFB 649 discussion paper 2011-082
Abstract:We consider a full equilibrium model in continuous time comprising a finite number of agents and tradable securities.We show that, if the agents' endowments are spanned by the securities and if the agents have entropic utilities, an equilibrium exists and the agents' optimal trading strategies are constant. Affine processes, and the theory of information-based asset pricing are used to model the endogenous asset price dynamics and the terminal payoff. Semi-explicit pricing formulae are obtained and applied to numerically analyze the impact of the agents' risk aversion on the implied volatility of simultaneously-traded European-style options.
Subjects:continuous-time equilibrium
CAPM
affine processes
information-based asset pricing
implied volatility
JEL:C62
D52
D53
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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