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Equilibrium Equity Premium in a Semi Martingale Market When Jump Amplitudes Follow a Binomial Distribution
School of Science, Engineering and Technology, Department of Mathematics and Statistics, Mulungushi University, Kabwe, Zambia
Department of Mathematics, University of Botswana, Gaborone, Botswana
- 1 School of Science, Engineering and Technology, Department of Mathematics and Statistics, Mulungushi University, Kabwe, Zambia
- 2 Department of Mathematics, University of Botswana, Gaborone, Botswana
Journal of Mathematical Finance·Volume 08 (2018)·Pages 599–612·Published 27 June 2018·DOI10.4236/jmf.2018.83038
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Abstract
This paper studies equilibrium equity premium in a semi martingale market when jump amplitudes follow a binomial distribution. We take n to be the number of times. An investor is trading in this market with p being the probability that there is a shift in the price at the trading time t . We find significant variations in the equilibrium equity premium for the martingale and semi martingale markets in terms of wealth value, volatility and other parameters under study. In this market, the equilibrium equity premium remains constant regardless of volatility and wealth value.
KeywordsBinomial DistributionSemi MartingaleRisk PremiumJump Diffusion
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