On the Consistency of Option Pricing Model with a General Equilibrium Framework

摘要

There are two methods on option pricing, no-arbitrage and equilibrium analysis. We construct a simple economy with continuous consumption, in which we "en-dogenize" the stochastic process of prices in the option pricing model based on no-arbitrage analysis. With constant relative risk aversion type utility function assumption, we present Merton (1973) option pricing model and find the consistency of the model with a general equilibrium framework. We extend the model to the market with m securities and it turns out similar results.