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Three Remarks On Asset Pricing

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  • Victor Olkhov
Abstract
We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval. For linear and quadratic Taylor approximations, we derive new expressions for the mean price, mean payoff, volatility, skewness, and the asset's amount that define the maximum of the investor's utility. We discuss the market-based origin of price probability. We use volume weighted average price (VWAP) as a market-based average price and introduce market-based price volatility. The use of VWAP results in zero correlations between the price p and trade volume U. We derive a correlation between price p and squares of trade volume {U^2} and between squares of price {p^2} and volume {U^2}. To predict market-based price volatility, one should forecast the 2-d statistical moments of the market trade values and volumes at the same horizon T.

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  • Victor Olkhov, 2021. "Three Remarks On Asset Pricing," Papers 2105.13903, arXiv.org, revised Jan 2024.
    • Handle: RePEc:arx:papers:2105.13903
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    Cited by:

    1. Victor Olkhov, 2023. "Economic Complexity Limits Accuracy of Price Probability Predictions by Gaussian Distributions," Papers 2309.02447, arXiv.org, revised Apr 2024.
    2. Olkhov, Victor, 2022. "Market-Based Price Autocorrelation," MPRA Paper 120288, University Library of Munich, Germany, revised 26 Feb 2024.
    3. Olkhov, Victor, 2022. "The Market-Based Asset Price Probability," MPRA Paper 113096, University Library of Munich, Germany.
    4. Olkhov, Victor, 2023. "Economic Theory as Successive Approximations of Statistical Moments," MPRA Paper 118722, University Library of Munich, Germany.
    5. Victor Olkhov, 2022. "Why Economic Theories and Policies Fail? Unnoticed Variables and Overlooked Economics," Papers 2208.07839, arXiv.org.
    6. Olkhov, Victor, 2023. "The Market-Based Statistics of “Actual” Returns of Investors," MPRA Paper 116896, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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