A Theory of Equivalent Expectation Measures for Contingent Claim Returns

• 成果类型: Article
• 署名作者: Nawalkha, Sanjay K.; Zhuo, Xiaoyang
• 署名单位: University of Massachusetts System; University of Massachusetts Amherst; Beijing Institute of Technology
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13172
• 发表日期: 2022
• 页码: 2853-2906
• 关键词: term structure; cross-section; risk premia; stochastic volatility; OPTION RETURNS; interest-rates; bond; securities; numeraire; arbitrage

摘要

This paper introduces a dynamic change of measure approach for computing analytical solutions of expected future prices (and therefore, expected returns) of contingent claims over a finite horizon. The new approach constructs hybrid probability measures called equivalent expectation measures (EEMs) that provide the physical expectation of the claim's future price before the horizon date, and serve as pricing measures on or after the horizon date. The EEM theory can be used for empirical investigations of both the cross-section and the term structure of returns of contingent claims, such as Treasury bonds, corporate bonds, and financial derivatives.