Risk Aversion, Intertemporal Substitution, and Option Pricing

René Garcia and Eric Renault

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: This paper develops a general stochastic framework and an equilibrium asset pricing model theat make clear how attitudes towards intertemporal substitution and risk matter for option pricing; In particular we show under which statistical conditions option princing formulas are not preference-free, in other words when preferences are not hidden in the stock and bond prices as they are in the standard Black and Scholes (BS) or Hull and White (HW) pricing formulas.

Keywords: COMPENSATIONS; UNEMPLOYMENT; INSURANCE (search for similar items in EconPapers)
JEL-codes: C10 C50 G10 (search for similar items in EconPapers)
Pages: 45 pages
Date: 1998
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Risk Aversion, Intertemporal Substitution, and Option Pricing (1998)
Working Paper: Risk Aversion, Intertemporal Substitution, and Option Pricing (1998)
Working Paper: Risk Aversion, Intertemporal Substitution, and Option Pricing (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:9801

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