Abstract
This paper presents preference free derivatives pricing methodology in the representative agent framework when the aggregate wealth of economy and the underlying variable for derivative contracts follow a correlated transformed beta distributions. As an important example, the marginal distribution is specified as the generalized beta (GB) distribution, which is characterized by six parameters. To demonstrate the existence of the risk neutral valuation relationship in such an economy, we present the preference free closed form call option formula for rescaled and shifted beta distribution of the first kind (RSB1) and second kind (RSB2). As a special case of the RSB2 formula, Bookstaber and McDonald (1985)'s result is also obtained.
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