Find out how to access previewonly content
Handbook of Quantitative Finance and Risk Management
pp 605616
The Valuation of Uncertain Income Streams and the Pricing of Options
 Mark RubinsteinAffiliated withUniversity of California Email author
Abstract
A simple formula is developed for the valuation of uncertain income streams consistent with rational investor behavior and equilibrium in financial markets. Applying this formula to the pricing of an option as a function of its associated stock, the Black–Scholes formula is derived even though investors can trade only at discrete points in time.
Keywords
CRRA intertemporal CAPM Pricing uncertain income streams Singleprice law of markets Arbitrage Stateprices Consumptionbased CAPM Local expectations hypothesis Unbiased term structure Random walk Option pricing Timeadditive utility Logarithmic utility Black– Scholes formula Equity risk premium puzzle Joint normality covariance theorem Title
 The Valuation of Uncertain Income Streams and the Pricing of Options
 Book Title
 Handbook of Quantitative Finance and Risk Management
 Book Part
 Part III
 Pages
 pp 605616
 Copyright
 2010
 DOI
 10.1007/9780387771175_41
 Print ISBN
 9780387771168
 Online ISBN
 9780387771175
 Publisher
 Springer US
 Copyright Holder
 Springer Science+Business Media, LLC
 Additional Links
 Topics
 Keywords

 CRRA intertemporal CAPM
 Pricing uncertain income streams
 Singleprice law of markets
 Arbitrage
 Stateprices
 Consumptionbased CAPM
 Local expectations hypothesis
 Unbiased term structure
 Random walk
 Option pricing
 Timeadditive utility
 Logarithmic utility
 Black– Scholes formula
 Equity risk premium puzzle
 Joint normality covariance theorem
 Industry Sectors
 eBook Packages
 Editors

 ChengFew Lee ^{(1)}
 Alice C. Lee ^{(2)}
 John Lee ^{(3)}
 Editor Affiliations

 1. Department of Finance and Economics, Rutgers University
 2.
 3. Center for PBBEF Research
 Authors

 Mark Rubinstein ^{(1)}
 Author Affiliations

 1. University of California, Berkley, CA, USA
Continue reading...
To view the rest of this content please follow the download PDF link above.