A General Framework for Asset Pricing

Title
A General Framework for Asset Pricing
Author(s)
조승모
Keywords
Asset pricing; Stochastic discount factor; Portfolio; CAPM; Time-dependent beta; APT; Option pricing; Insurance premium pricing
Issue Date
201205
Publisher
한양대학교 경제연구소
Citation
Journal of Economic Research (JER), v.17, no.1, pp.19 - 48
Abstract
Gerber and Shiu (1994) and Henne and Reichling (2006) have independently derived similar stochastic discount factor asset pricing principles in justifying their arguments regarding asset pricing. In this paper, we show that if we slightly modify the two principles, they reach the same asset pricing principle. To be specific, in deriving their pricing principles, both Gerber and Shiu (1994) and Henne and Reichling (2006) deal with the case of a single risk-free asset and a single risky asset for which Gerber and Shiu (1994) further assume a financial derivative. Here, we simply extend their logic to portfolios of the entire capital market, in line with the portfolio theory by Markowitz (1952, 1956, 1959), Sharpe (1964), Lintner (1965), and Mossin (1966), to make the two principles converge to each other. And based on the converged version of the pricing principles, we show that the capital asset pricing model by Sharpe (1964), Lintner (1965), and Mossin (1966), the capital asset pricing model with time-dependent beta by Henne and Reichling (2006), the arbitrage pricing theory by Ross (1976), the Gerber-Shiu model by Gerber and Shiu (1994) (a generalization of the Black-Scholes model by Black and Scholes (1973) and Merton (1973b)), and the Esscher insurance premium pricing principle by B\"{u}hlmann (1980) can all be derived under a unified pricing principle.
URI
http://hdl.handle.net/YU.REPOSITORY/28177
ISSN
1226-4261
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상경대학 > 경제금융학부 > Articles
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