The term ‘no-good-deal pricing’ in this paper encompasses pricing techniques based on the absence of attractive investment opportunities – good deals – in equilibrium. We borrowed the term from [8] who pioneered the calculation of price bands conditional on the absence of high Sharpe Ratios. Alternative methodologies for calculating tighter-than-no-arbitrage price bounds have been suggested by ...

This paper uses S&P 500 index options data to examine whether proxies of investor sentiment, or aggregate errors in investor beliefs, affect option prices and asset pricing kernel. I find that when market sentiment becomes more bearish (resp. bullish), both index option smile and asset pricing kernel are more (resp. less) negatively sloped. These relations are statistically and economically sig...

This paper surveys some recent developments in the theory of capital markets. Particular emphasis is given to two strands of the literature. The rst covers some recent and fundamental extensions to the theory of risk aversion and the demand for risky assets. These papers are concerned with the e ect of nonhedgeable background risk on risk attitudes. The important implications for nance are for ...

This paper shows how differences across countries of 1) inflation rates, 2) consumption baskets of investors, and 3) investment opportunity sets of investors matter when one applies capital asset pricing models in an international setting. In particular, the fact that countries differ is shown to affect the portfolio held by investors, the equilibrium expected returns of risky assets, and the f...

Abstract. Utility indifference pricing and hedging theory is presented, showing how it leads to linear or to non-linear pricing rules for contingent claims. Convex duality is first used to derive probabilistic representations for exponential utility-based prices, in a general setting with locally bounded semi-martingale price processes. The indifference price for a finite number of claims gives...

This paper proves existence of equilibrium and the arbitrage pricing theorem for an asset exchange economy, where individuals' preferences may be incomplete or intransitive. This extends existing results to more general preferences. We also prove the arbitrage pricing theorem for a theory of choice under uncertainty by Bewley [Bewley, T. F. (2002), Knightian decision theory: part I, Decisions i...

explanation relation between risk and return and capital asset pricing are concepts which is appointed as dominator and major paradigms in capital markets. so far as after offering capm by sharp & lintner, this model has been revised and criticized frequently. in this paper another version of capm has been tested versus traditional capm in tehran stock exchange. this version of capm measures se...

International asset pricing theory suggests that capital market liberalisation will reduce the cost of domestic equity capital through increased international diversification by domestic and international investors. For a liberalising country, this will have a positive effect on domestic investment. Existing empirical evidence provides only partial support to this prediction. Some studies regis...

In the Black-Scholes option pricing theory, asset prices are modelled as geometric Brownian motion with a fixed volatility parameter σ, and option prices are determined as functions of the underlying asset price. Options are in principle redundant in that their exercise values can be replicated by trading in the underlying. However, it is an empirical fact that the prices of exchange-traded opt...

We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In one treatment we impose diminishing marginal returns to cash to incentivize consumption-smoothing across periods, while in a second treatment there is no induced motive for trade. In the former case we find that subjects use the asset to smooth consumption though the asse...