General equilibrium pricing of currency and currency options

• 成果类型: Article
• 署名作者: Du, Du
• 署名单位: City University of Hong Kong
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.08.006
• 发表日期: 2013
• 页码: 730-751
• 关键词: Variable disaster; Recursive preference; Stochastic skewness; Carry trade; Uncovered interest parity anomaly

摘要

This paper presents a consumption-based general equilibrium model for valuing foreign exchange contingent claims. The model identifies a novel economic mechanism by exploiting highly but imperfectly shared consumption disaster with variable intensities which are the concerns to the representative investor under recursive utility. When applied to the data, the model simultaneously replicates (i) the moderate option-implied volatilities; (ii) substantial variations in the risk-neutral skewness of currency returns; (iii) the uncovered interest rate parity puzzle; and (iv) the first two moments of carry trade returns. Furthermore, the model rationalizes salient features of the aggregate stock, government bonds, and equity index options. (C) 2013 Elsevier B.V. All rights reserved.