General Equilibrium Option Pricing Method: Theoretical and Empirical Study

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Focusing on the general equilibrium asset pricing method, the book explores option pricing and variance risk premium. It addresses the volatility smile and smirk, explaining the phenomenon through a general equilibrium lens rather than no arbitrage. The presence of jump risk leads investors to prioritize jump risk premiums, resulting in a distinct volatility smirk. Additionally, it introduces the concept of variance risk premium and tests its predictive power for international stock market returns, offering valuable insights into asset pricing dynamics.