This paper introduces a mathematical model for a currently popular financial product called a stock loan. Quantitative analysis is carried out to establish explicitly the value of such a loan, as well as the ranges of fair values of the loan size and interest, and the fee for providing such a service.

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We provide conditions on a one-period-two-date pure exchange economy with rankdependent utility agents under which Arrow-Debreu equilibria exist. When such an equilibrium exists, we show that the state-price density is a weighted marginal rate of intertemporal substitution of a representative agent, where the weight depends on the differential of the probability weighting function. Based on the result, we find that asset prices depend upon agents' subjective beliefs regarding overall consumption growth, and we offer a direction for possible resolution of the equity premium puzzle.