A Multiperiod Equilibrium Pricing Model
We propose an equilibrium pricing model in a dynamic multiperiod stochastic framework with uncertain income. There are one tradable risky asset (stock/commodity), one nontradable underlying (temperature), and also a contingent claim (weather derivative) written on the tradable risky asset and the no...
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| Format: | Article |
| Language: | English |
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Wiley
2014-01-01
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| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2014/408685 |
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| author | Minsuk Kwak Traian A. Pirvu Huayue Zhang |
| author_facet | Minsuk Kwak Traian A. Pirvu Huayue Zhang |
| author_sort | Minsuk Kwak |
| collection | DOAJ |
| description | We propose an equilibrium pricing model in a dynamic multiperiod stochastic framework with uncertain income. There are one tradable risky asset (stock/commodity), one nontradable underlying (temperature), and also a contingent claim (weather derivative) written on the tradable risky asset and the nontradable underlying in the market. The price of the contingent claim is priced in equilibrium by optimal strategies of representative agent and market clearing condition. The risk preferences are of exponential type with a stochastic coefficient of risk aversion. Both subgame perfect strategy and naive strategy are considered and the corresponding equilibrium prices are derived. From the numerical result we examine how the equilibrium prices vary in response to changes in model parameters and highlight the importance of our equilibrium pricing principle. |
| format | Article |
| id | doaj-art-7acf46ddf3824473924bb58ab4d537ba |
| institution | Kabale University |
| issn | 1110-757X 1687-0042 |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Applied Mathematics |
| spelling | doaj-art-7acf46ddf3824473924bb58ab4d537ba2025-02-03T01:03:30ZengWileyJournal of Applied Mathematics1110-757X1687-00422014-01-01201410.1155/2014/408685408685A Multiperiod Equilibrium Pricing ModelMinsuk Kwak0Traian A. Pirvu1Huayue Zhang2Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, ON, L8S 4K1, CanadaDepartment of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, ON, L8S 4K1, CanadaDepartment of Finance, Nankai University, 94 Weijin Road, Tianjin 300071, ChinaWe propose an equilibrium pricing model in a dynamic multiperiod stochastic framework with uncertain income. There are one tradable risky asset (stock/commodity), one nontradable underlying (temperature), and also a contingent claim (weather derivative) written on the tradable risky asset and the nontradable underlying in the market. The price of the contingent claim is priced in equilibrium by optimal strategies of representative agent and market clearing condition. The risk preferences are of exponential type with a stochastic coefficient of risk aversion. Both subgame perfect strategy and naive strategy are considered and the corresponding equilibrium prices are derived. From the numerical result we examine how the equilibrium prices vary in response to changes in model parameters and highlight the importance of our equilibrium pricing principle.http://dx.doi.org/10.1155/2014/408685 |
| spellingShingle | Minsuk Kwak Traian A. Pirvu Huayue Zhang A Multiperiod Equilibrium Pricing Model Journal of Applied Mathematics |
| title | A Multiperiod Equilibrium Pricing Model |
| title_full | A Multiperiod Equilibrium Pricing Model |
| title_fullStr | A Multiperiod Equilibrium Pricing Model |
| title_full_unstemmed | A Multiperiod Equilibrium Pricing Model |
| title_short | A Multiperiod Equilibrium Pricing Model |
| title_sort | multiperiod equilibrium pricing model |
| url | http://dx.doi.org/10.1155/2014/408685 |
| work_keys_str_mv | AT minsukkwak amultiperiodequilibriumpricingmodel AT traianapirvu amultiperiodequilibriumpricingmodel AT huayuezhang amultiperiodequilibriumpricingmodel AT minsukkwak multiperiodequilibriumpricingmodel AT traianapirvu multiperiodequilibriumpricingmodel AT huayuezhang multiperiodequilibriumpricingmodel |