General Equilibrium Stock Index Futures Pricing

Allowing for Event Risk

Department of Finance, National Chengchi University, Taiwan

Department of Finance, Feng Chia University, Taiwan

This study develops a new futures pricing model and derives its analytic solution. Comparative static and simulation results are also presented. Under this general equilibrium framework, we find that bounded degrees of state variables in the broad economy determine co-varying extents among various important market variables. However, increasing event risk, including the sizes of occurrence probability and corresponding impulse effects, makes their analysis intractable.

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