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The semi-martingale equilibrium equity premium for risk-neutral investors

Author

Listed:
  • George M. Mukupa

    (Department of Mathematics and Statistics, Mulungushi University, Kabwe, Zambia)

  • Elias R. Offen

    (#x2020;Department of Mathematics, University of Botswana, Gaborone, Botswana)

Abstract

In this paper, we study the risk-neutral investor’s equilibrium equity premium in a semi-martingale market with arbitrary, normal, binomial and gamma jumps. We simulate graphs for discrete distribution of jump amplitudes in order to study the parameter effect. The equity premium for this investor remains the same regardless of α and β variations in the linear utility function. In fact, there is no optimal consumption for β=1. For normal jumps, our results are consistent with the risk-averse investor’s power utility effect on the equity premium. However, the binomial and gamma amplitudes show significant variations between risk neutrality and risk aversion.

Suggested Citation

  • George M. Mukupa & Elias R. Offen, 2018. "The semi-martingale equilibrium equity premium for risk-neutral investors," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-15, December.
    • Handle: RePEc:wsi:ijfexx:v:05:y:2018:i:04:n:s2424786318500354
    DOI: 10.1142/S2424786318500354
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    References listed on IDEAS

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    Cited by:

    1. George M. Mukupa & Elias R. Offen, 2020. "The Semimartingale Equilibrium Risk Premium for a Risk Seeking Investor," Journal of Mathematics Research, Canadian Center of Science and Education, vol. 12(4), pages 1-13, August.

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