TITLE:
Equilibrium Equity Premium in a Semi Martingale Market When Jump Amplitudes Follow a Binomial Distribution
AUTHORS:
George M. Mukupa, Elias R. Offen
KEYWORDS:
Binomial Distribution, Semi Martingale, Risk Premium, Jump Diffusion
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.8 No.3,
August
20,
2018
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.