The Black-Scholesmodelis basedona one-parameter pricingkernel with constantelasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel withat leasttwo parameters.We price European-style optionson assets whose probability distributions have two unknown...

The Black-Scholesmodelis basedona one-parameter pricingkernel with constantelasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel withat leasttwo parameters.We price European-style optionson assets whose probability distributions have two unknown...

The Black-Scholes model is based on a one-parameter pricing kernel with constant elasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel with at least two parameters. We price European-style options on assets whose probability distributions have...

The Black-Scholes model is based on a one-parameter pricing kernel with constant elasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel with at least two parameters. We price European-style options on assets whose probability distributions have...

We consider random wealth of the multiplicative form xy, where x and y are statistically independent random variables. We assume that x is endogenous to the economic agent, but that y is an exogenous and uninsurable background risk. Our main focus is on how the randomness of y affects...

We consider the demand for state contingent claims in the presence of a zero-mean, nonhedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show...