Abstract

http://ssrn.com/abstract=114744
 


 



Recent Developments in Capital Market Theory: A Survey


Richard C. Stapleton


University of Strathclyde - Department of Accounting and Finance

June 1997

Lancaster University Department of Accounting and Finance 98/006

Abstract:     
This paper surveys some recent developments in the theory of capital markets. Particular emphasis is given to two strands of the literature. The first covers some recent and fundamental extensions to the theory of risk aversion and the demand for risky assets. Theses papers are concerned with the effect of non-hedgeable background risk on risk attitudes. The important implications for finance are for the size of the risk premium (the equity premium puzzle) and for the demand for and pricing of contingent claims. For example, background risk may help to explain the apparent over-pricing of options on equity indices.
The second topic is interest rate term structure models. Stochastic term structure models try to capture the possible future shapes of the term structure of interest rates. This is relevant for the pricing of contingent claims, in particular for the pricing of interest rate derivatives such as American-style swaptions. The paper will survey the most important recent models in the literature, each of which satisfies the fundamental no-arbitrage property. It will discuss the implications of the models for the pricing of both European-style and American-style options.

JEL Classification: E43, G11, G12, G13

working papers series


Not Available For Download

Date posted: August 13, 1998  

Suggested Citation

Stapleton, Richard C., Recent Developments in Capital Market Theory: A Survey (June 1997). Lancaster University Department of Accounting and Finance 98/006. Available at SSRN: http://ssrn.com/abstract=114744

Contact Information

Richard C. Stapleton (Contact Author)
University of Strathclyde - Department of Accounting and Finance ( email )
Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
+44 1524 381 172 (Phone)
+44 1524 846874 (Fax)
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