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A New Approach to International Arbitrage Pricing

Ravi Bansal, David A. Hsieh and S. Viswanathan
The Journal of Finance
Vol. 48, No. 5 (Dec., 1993), pp. 1719-1747
Published by: Wiley for the American Finance Association
DOI: 10.2307/2329065
Stable URL: http://www.jstor.org/stable/2329065
Page Count: 29
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A New Approach to International Arbitrage Pricing
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Abstract

This paper uses a nonlinear arbitrage-pricing model, a conditional linear model, and an unconditional linear model to price international equities, bonds, and forward currency contracts. Unlike linear models, the nonlinear arbitrage-pricing model requires no restrictions on the payoff space, allowing it to price payoffs of options, forward contracts, and other derivative securities. Only the nonlinear arbitrage-pricing model does an adequate job of explaining the time series behavior of a cross section of international returns.

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