Notes on Multiperiod Valuation and the Pricing of Options |
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Authors: | SUDIPTO BHATTACHARYA |
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Abstract: | A mean-variance risk-return tradeoff relationship is derived for the diffusion process limiting case of a state-preference model, with aggregate consumption serving as a pivotal variable. The model is compared to other recent models along the dimensions of generality and tractable implementation. The incorporation of stochastic interest rates in general equilibrium and arbitrage-based valuation models is examined, and an extension to earlier methods is discussed, in connection with the implementation of “robust” general valuation procedures. |
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