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arXiv · 1205.6193

A Multi Period Equilibrium Pricing Model

Traian A. Pirvu·Huayue Zhang
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Abstract

In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative) and a non-traded underlying (e.g. temperature). The risk preferences are of exponential (CARA) type with a stochastic coefficient of risk aversion. Both time consistent and time inconsistent trading strategies are considered. We obtain the equilibriums prices of a contingent claim written on the risky asset and non-traded underlying. By running numerical experiments we examine how the equilibriums prices vary in response to changes in model parameters.

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Traian A. Pirvu, Huayue Zhang. 2012-05-28. A Multi Period Equilibrium Pricing Model. https://arxiv.org/abs/1205.6193

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