Recovering Probabilities And Risk Aversion From Option Prices And Realized Returns
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Recovering Probabilities And Risk Aversion From Option Prices And Realized Returns
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Author : Mark Rubinstein
language : en
Publisher:
Release Date : 2008
Recovering Probabilities And Risk Aversion From Option Prices And Realized Returns written by Mark Rubinstein and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
Recovering Risk Aversion From Option Prices And Realized Returns
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Author : Jens Carsten Jackwerth
language : en
Publisher:
Release Date : 2000
Recovering Risk Aversion From Option Prices And Realized Returns written by Jens Carsten Jackwerth and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.
A relationship exists between aggregate risk-neutral and subjective probability distributions and risk aversion functions. We empirically derive risk aversion functions implied by option prices and realized returns on the Samp;P500 index simultaneously. These risk aversion functions dramatically change shapes around the 1987 crash: Precrash, they are positive and decreasing in wealth and largely consistent with standard assumptions made in economic theory. Postcrash, they are partially negative and partially increasing and irreconcilable with those assumptions. Mispricing in the option market is the most likely cause. Simulated trading strategies exploiting this mispricing shows excess returns even after accounting for the possibility of further crashes, transaction costs, and hedges against the downside risk.
Recovering Risk Aversion From Options
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Author : Robert R. Bliss
language : en
Publisher:
Release Date : 2005
Recovering Risk Aversion From Options written by Robert R. Bliss and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
Cross-sections of option prices embed the risk-neutral probability densities functions (PDFs) for the future values of the underlying asset. Theory suggests that risk-neutral PDFs differ from market expectations due to risk premia. Using a utility function to adjust the risk-neutral PDF to produce subjective PDFs, we can obtain measures of the risk aversion implied in option prices. Using FTSE 100 and Samp;P 500 options, and both power and exponential utility functions, we show that subjective PDFs accurately forecast the distribution of realizations, while risk-neutral PDFs do not. The estimated coefficients of relative risk aversion are all reasonable. The relative risk aversion estimates are remarkably consistent across utility functions and across markets for given horizons. The degree of relative risk aversion declines with the forecast horizon and is lower during periods of high market volatility.
Option Implied Risk Neutral Distributions And Risk Aversion
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Author : Jens Carsten Jackwerth
language : en
Publisher:
Release Date : 2008
Option Implied Risk Neutral Distributions And Risk Aversion written by Jens Carsten Jackwerth and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
Time Variations In Risk Aversion Recovered From Option Prices
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Author : Moshe Omer
language : en
Publisher:
Release Date : 2007
Time Variations In Risk Aversion Recovered From Option Prices written by Moshe Omer and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
General Equilibrium Option Pricing Method Theoretical And Empirical Study
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Author : Jian Chen
language : en
Publisher: Springer
Release Date : 2018-04-10
General Equilibrium Option Pricing Method Theoretical And Empirical Study written by Jian Chen and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-04-10 with Business & Economics categories.
This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
The Value Of Uncertainty
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Author : George Kaye
language : en
Publisher: World Scientific Publishing Company
Release Date : 2012-11-16
The Value Of Uncertainty written by George Kaye and has been published by World Scientific Publishing Company this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-11-16 with Business & Economics categories.
Along with the extraordinary growth in the derivatives market over the last decade, the impact of model choice, and model parameter usage, has become a major source of valuation uncertainty. This book concentrates on equity derivatives and charts, step by step, how key assumptions on the dynamics of stocks impact on the value of exotics. The presentation is technical, but maintains a strong focus on intuition and practical application.
Stochastic Dominance Option Pricing
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Author : Stylianos Perrakis
language : en
Publisher: Springer
Release Date : 2019-05-03
Stochastic Dominance Option Pricing written by Stylianos Perrakis and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-05-03 with Business & Economics categories.
This book illustrates the application of the economic concept of stochastic dominance to option markets and presents an alternative option pricing paradigm to the prevailing no arbitrage simultaneous equilibrium in the frictionless underlying and option markets. This new methodology was developed primarily by the author, working independently or jointly with other co-authors, over the course of more than thirty years. Among others, it yields the fundamental Black-Scholes-Merton option value when markets are complete, presents a new approach to the pricing of rare event risk, and uncovers option mispricing that leads to tradeable strategies in the presence of transaction costs. In the latter case it shows how a utility-maximizing investor trading in the market and a riskless bond, subject to proportional transaction costs, can increase his/her expected utility by overlaying a zero-net-cost portfolio of options bought at their ask price and written at their bid price, irrespective of the specific form of the utility function. The book contains a unified presentation of these methods and results, making it a highly readable supplement for educators and sophisticated professionals working in the popular field of option pricing. It also features a foreword by George Constantinides, the Leo Melamed Professor of Finance at the Booth School of Business, University of Chicago, USA, who was a co-author in several parts of the book.
Asset Price Dynamics Volatility And Prediction
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Author : Stephen J. Taylor
language : en
Publisher: Princeton University Press
Release Date : 2011-02-11
Asset Price Dynamics Volatility And Prediction written by Stephen J. Taylor and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-02-11 with Business & Economics categories.
This book shows how current and recent market prices convey information about the probability distributions that govern future prices. Moving beyond purely theoretical models, Stephen Taylor applies methods supported by empirical research of equity and foreign exchange markets to show how daily and more frequent asset prices, and the prices of option contracts, can be used to construct and assess predictions about future prices, their volatility, and their probability distributions. Stephen Taylor provides a comprehensive introduction to the dynamic behavior of asset prices, relying on finance theory and statistical evidence. He uses stochastic processes to define mathematical models for price dynamics, but with less mathematics than in alternative texts. The key topics covered include random walk tests, trading rules, ARCH models, stochastic volatility models, high-frequency datasets, and the information that option prices imply about volatility and distributions. Asset Price Dynamics, Volatility, and Prediction is ideal for students of economics, finance, and mathematics who are studying financial econometrics, and will enable researchers to identify and apply appropriate models and methods. It will likewise be a valuable resource for quantitative analysts, fund managers, risk managers, and investors who seek realistic expectations about future asset prices and the risks to which they are exposed.
Asset Pricing And Portfolio Choice Theory
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Author : Kerry Back
language : en
Publisher: Oxford University Press, USA
Release Date : 2010
Asset Pricing And Portfolio Choice Theory written by Kerry Back and has been published by Oxford University Press, USA this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Business & Economics categories.
This book covers the classical results on single-period, discrete-time, and continuous-time models of portfolio choice and asset pricing. It also treats asymmetric information, production models, various proposed explanations for the equity premium puzzle, and topics important for behavioral finance.