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| Author: | Bick, A. |
| Title: | On the consistency of the Black-Scholes model with a general equilibrium framework. |
| Journal: | Journal of Financial and Quantitative Analysis
1987 : SEP, VOL. 22:3, p. 259-275 |
| Index terms: | SHARE OPTIONS SHARE PRICES |
| Language: | eng |
| Abstract: | A simple economy with consumption only at a final date is constructed, where the stochastic behavior of prices assumed in the Black-Scholes model is "endogenized". We show that certain preferences (constant proportional risk aversion) and beliefs are necessary and sufficient for the existence of such an equilibrium. Further, we generalize the analysis to a continuous-consumption framework, embedding the Merton proportional dividend model, too. |
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