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The pricing kernel puzzle: survey and outlook

Author

Listed:
  • Horatio Cuesdeanu

    (University of Konstanz)

  • Jens Carsten Jackwerth

    (University of Konstanz)

Abstract

It has been a while since the literature on the pricing kernel puzzle was summarized in Jackwerth (Option-implied risk-neutral distributions and risk-aversion, The Research Foundation of AIMR, Charlotteville, 2004). That older survey also covered the topic of risk-neutral distributions, which was itself already surveyed in Jackwerth (J Deriv 2:66–82, 1999). Much has happened in those years and estimation of risk-neutral distributions has moved from new and exciting in the last half of the 1990s to becoming a well-understood technology. Thus, the present survey will focus on the pricing kernel puzzle, which was first discussed around 2000. We document the pricing kernel puzzle in several markets and present the latest evidence concerning its (non-)existence. Econometric studies are detailed which test for the pricing kernel puzzle. The present work adds much breadth in terms of economic explanations of the puzzle. New challenges for the field are described in the process.

Suggested Citation

  • Horatio Cuesdeanu & Jens Carsten Jackwerth, 2018. "The pricing kernel puzzle: survey and outlook," Annals of Finance, Springer, vol. 14(3), pages 289-329, August.
    • Handle: RePEc:kap:annfin:v:14:y:2018:i:3:d:10.1007_s10436-017-0317-9
    DOI: 10.1007/s10436-017-0317-9
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    More about this item

    Keywords

    Pricing kernel puzzle; Stochastic discount factor; Options; S&P 500;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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    Access and download statistics

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