A NOTE ON THE RISK-PREMIUM PROCESS IN AN EQUILIBRIUM

Jun Sekine ()
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Jun Sekine: Institute of Economic Research, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan

International Journal of Theoretical and Applied Finance (IJTAF), 2008, vol. 11, issue 07, 705-716

Abstract: Results in He–Leland (1993) are extended and properties of the risk-premium process in an equilibrium are examined in a pure exchange economy with a representative agent: for example, (i) the risk-premium process is characterized by using a martingale representation of the reciprocal of a terminal marginal utility, (ii) it is expressed as a (conditional) expected value including the relative risk aversion coefficient of a terminal utility and the Jacobian matrix process of the state variables, and, (iii) a "mean-reverting" property relates to the monotonic decreasing property of the relative risk aversion coefficient.

Keywords: Equilibrium; asset price process; risk-premium; volatility; relative risk aversion coefficient (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1142/S0219024908005007

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