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Representative Agent Pricing of Financial Assets Based on Lévy Processes with Normal Inverse Gaussian Marginals

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Abstract

The aim of the paper is to test the assumption of normal inverse Gaussian returns from speculative investments. We construct an asset pricing model where price processes are pure jump processes having associated returns with marginal distributions of this particular type. The resulting model is not complete, and we employ a partial equilibrium framework with a representative agent. The model is confronted with some stylized facts, like the equity premium puzzle, and the results seem promising.

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Authors and Affiliations

  1. Norwegian School of Economics and Business Administration, Helleveien 30, N-5045, Bergen-Sandviken, Norway

    Knut K. Aase

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Aase, K.K. Representative Agent Pricing of Financial Assets Based on Lévy Processes with Normal Inverse Gaussian Marginals. Annals of Operations Research 114, 15–31 (2002). https://doi.org/10.1023/A:1021093615674

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  • DOI: https://doi.org/10.1023/A:1021093615674