C?mara A.Wang Y.-H.2019-07-242019-07-24201002707314https://scholars.lib.ntu.edu.tw/handle/123456789/414912This study derives a simple square root option pricing model using a general equilibrium approach in an economy where the representative agent has a generalized logarithmic utility function. Our option pricing formulae, like the Black-Scholes model, do not depend on the preference parameters of the utility function of the representative agent. Although the Black-Scholes model introduces limited liability in asset prices by assuming that the logarithm of the stock price has a normal distribution, our basic square root option pricing model introduces limited liability by assuming that the square root of the stock price has a normal distribution. The empirical tests on the S&P 500 index options market show that our model has smaller fitting errors than the Black-Scholes model, and that it generates volatility skews with similar shapes to those observed in the marketplace. ? 2010 Wiley Periodicals, Inc. Jrl Fut Mark.journal article10.1002/fut.204582-s2.0-78149295673https://www.scopus.com/inward/record.uri?eid=2-s2.0-78149295673&doi=10.1002%2ffut.20458&partnerID=40&md5=ac469f8442e82074e08d4d18466933a6