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HangukQuant Research
Macro/Micro Foundations of Risk Premiums

Macro/Micro Foundations of Risk Premiums

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HangukQuant
Mar 18, 2023
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HangukQuant Research
HangukQuant Research
Macro/Micro Foundations of Risk Premiums
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In the previous posts, we introduced the concept of risk-neutral pricing:

HangukQuant’s Newsletter
Market Notes ( 275 + 25 ) Pages. Treatments to Risk-Neutral Measures and Girsanov Theorems.
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2 years ago · 7 likes · HangukQuant

The Feynman-Kac theorem asserts that the solutions to risk-neutrally priced assets satisfy the BSM PDE by drawing the link between SDE and PDEs. These were discussed:

HangukQuant’s Newsletter
Relating SDE & PDE under the Risk-Neutral Pricing (Feynman-Kac theorems) 320+26 pages
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2 years ago · 3 likes · HangukQuant

These arguments were largely theoretical - one may be left somewhat confused about why the change of measure, or the divergence of probability measures exist in the first place. What does ‘risk-neutral’ even suggest? The concept of risk premiums and consumption volatility ties together these ideas based on the underlying behavior of investor activity.

Risk Premiums (paper, 9 pages):

Risk Premiums
387KB ∙ PDF file
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Full Market Notes: (326 + 29 Pages) - paid readers:

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