Equilibrium Equity Premium in a Semi Martingale Market When Jump Amplitudes Follow a Binomial Distribution

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.