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Option-implied risk preferences: An extension to wider classes of utility functions

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  • Kang, Byung Jin
  • Kim, Tong Suk
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    File URL: http://www.sciencedirect.com/science/article/B6VHN-4JK4PN5-1/2/e768ae3f4078a4f36681a89f51cbe319
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 9 (2006)
    Issue (Month): 2 (May)
    Pages: 180-198

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    Handle: RePEc:eee:finmar:v:9:y:2006:i:2:p:180-198

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    Web page: http://www.elsevier.com/locate/finmar

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    References

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    1. Jens Carsten Jackwerth., 1996. "Recovering Risk Aversion from Option Prices and Realized Returns," Research Program in Finance Working Papers RPF-265, University of California at Berkeley.
    2. Ait-Sahalia, Yacine & Lo, Andrew W., 2000. "Nonparametric risk management and implied risk aversion," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 9-51.
    3. Christophe Pérignon & Christophe Villa, 2002. "Extracting Information from Options Markets: Smiles, State-Price Densities and Risk Aversion," European Financial Management, European Financial Management Association, vol. 8(4), pages 495-513.
    4. Bhupinder Bahra, 1997. "Implied risk-neutral probability density functions from option prices: theory and application," Bank of England working papers 66, Bank of England.
    5. Campa, Jose M. & Chang, P. H. Kevin & Reider, Robert L., 1998. "Implied exchange rate distributions: evidence from OTC option markets1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 117-160, February.
    6. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
    7. Robert R. Bliss & Nikolaos Panigirtzoglou, 2004. "Option-Implied Risk Aversion Estimates," Journal of Finance, American Finance Association, vol. 59(1), pages 407-446, 02.
    8. Berkowitz, Jeremy, 2001. "Testing Density Forecasts, with Applications to Risk Management," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 465-74, October.
    9. Leland, Hayne E, 1980. " Who Should Buy Portfolio Insurance?," Journal of Finance, American Finance Association, vol. 35(2), pages 581-94, May.
    10. Bick, Avi, 1990. " On Viable Diffusion Price Processes of the Market Portfolio," Journal of Finance, American Finance Association, vol. 45(2), pages 673-89, June.
    11. J. G. Kallberg & W. T. Ziemba, 1983. "Comparison of Alternative Utility Functions in Portfolio Selection Problems," Management Science, INFORMS, vol. 29(11), pages 1257-1276, November.
    12. Bliss, Robert R. & Panigirtzoglou, Nikolaos, 2002. "Testing the stability of implied probability density functions," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 381-422, March.
    13. David E. Bell, 1988. "One-Switch Utility Functions and a Measure of Risk," Management Science, INFORMS, vol. 34(12), pages 1416-1424, December.
    14. Coutant, Sophie, 1999. "Implied risk aversion in option prices using Hermite polynomials," Economics Papers from University Paris Dauphine 123456789/9842, Paris Dauphine University.
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    Cited by:
    1. Claude Bergeron, 2013. "Dividend growth, stock valuation, and long-run risk," Journal of Economics and Finance, Springer, vol. 37(4), pages 547-559, October.
    2. Francisco Alonso & Roberto Blanco & Gonzalo Rubio, 2009. "Option-implied preferences adjustments, density forecasts, and the equity risk premium," Spanish Economic Review, Springer, vol. 11(2), pages 141-164, June.
    3. Belén Nieto & Gonzalo Rubio, 2007. "Measuring time-varying economic fears with consumption-based stochastic discount factors," Economics Working Papers 1029, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2007.
    4. Francisco Alonso & Roberto Blanco & Gonzalo Rubio, 2006. "Option-implied preferences adjustments, density forecasts, and the equity risk premium," Banco de Espa�a Working Papers 0630, Banco de Espa�a.
    5. Kang, Byung Jin & Kim, Tong Suk, 2008. "Empirical risk aversion functions-estimates and assessment of their reliability," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 1123-1138, December.
    6. Pirjetä, Antti & Ikäheimo, Seppo & Puttonen, Vesa, 2010. "Market pricing of executive stock options and implied risk preferences," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 394-412, June.
    7. Rompolis, Leonidas S., 2010. "Retrieving risk neutral densities from European option prices based on the principle of maximum entropy," Journal of Empirical Finance, Elsevier, vol. 17(5), pages 918-937, December.

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