An equilibrium model of rare-event premia and its implication for option smirks

• 成果类型: Article
• 署名作者: Liu, J; Pan, J; Wang, T
• 署名单位: Massachusetts Institute of Technology (MIT); University of California System; University of California Los Angeles; National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhi011
• 发表日期: 2005
• 页码: 131
• 关键词: Stochastic differential utility; continuous-time; ROBUST-CONTROL; asset returns; risk-aversion; ambiguity; prices; consumption; uncertainty; BEHAVIOR

摘要

This article studies the asset pricing implication of imprecise knowledge about rare events. Modeling rare events as jumps in the aggregate endowment, we explicitly solve the equilibrium asset prices in a pure-exchange economy with a representative agent Who is Averse not only to risk but also to model uncertainty with respect to rare events. The equilibrium equity premium has three components: the diffusive- and jump-risk premiums, both driven by risk aversion; and the rare-event premium, driven exclusively by uncertainty aversion. To disentangle the rare-event premiums from the standard risk-based premiums, we examine the equilibrium prices of options across moneyness or, equivalently, across varying sensitivities to rare events. We find that uncertainty aversion toward rare events plays an important role in explaining the pricing differentials among options across moneyness, particularly the prevalent smirk patterns documented in the index options market.