Option - Implied Risk Aversion Estimates  

Oleh:

Bliss, Robert R. ; Panigirtzoglou, Nikolaos

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 59 no. 1 (Feb. 2004), page 407-446.
Topik: risks; utility functions; options trading; stock prices; rational expectations; studies; measurement techniques; statistical analysis; mathematical models
Fulltext: p 407.pdf (356.28KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

Using a utility function to adjust the risk-neutral probability density functions (PDF) embedded in cross sections of options, measures of the risk aversion implied in option prices are obtained. The goal is to find implied subjective density functions that are consistent with both utility theory and rational expectations. FTSE 100 and S&P 500 options and 2 different utility functions are used to adjust risk - neutral PDFs. The optimal value for the parameters of the utility functions used to construct the subjective PDFs are is found. It is shown that these subjective PDFs are improved forecasters of the distribution of future values of the underlying indices. The relative performance of alternative sets of PDFs are examined to determine whether one competing alternative is superior to another. The Monte Carlo tests conducted to select the research method are discussed.

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