Statistics of Risk Aversion
AbstractInformation about risk preferences from investors is essential for modelling a wide range of quantitative finance applications. Valuable information related to preferences can be extracted from option prices through pricing kernels. In this paper, pricing kernels and their term structure are estimated in a time varying approach from DAX and ODAX data using dynamic semiparametric factor model (DSFM). DSFM smooths in time and space simultaneously, approximating complex dynamic structures by basis functions and a time series of loading coefficients. Contradicting standard risk aversion assumptions, the estimated pricing kernels indicate risk proclivity in certain levels of return. The analysis of the time series of loading coefficients allows a better understanding of the dynamic behaviour from investors preferences towards risk.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-025.
Length: 11 pages
Date of creation: May 2007
Date of revision:
Dynamic Semiparametric Estimation; Pricing Kernel; Risk Aversion.;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Park, Byeong U. & Mammen, Enno & HÃ¤rdle, Wolfgang & Borak, Szymon, 2009.
"Time Series Modelling With Semiparametric Factor Dynamics,"
Journal of the American Statistical Association,
American Statistical Association, vol. 104(485), pages 284-298.
- Szymon Borak & Wolfgang Härdle & Enno Mammen & Byeong U. Park, 2007. "Time Series Modelling with Semiparametric Factor Dynamics," SFB 649 Discussion Papers SFB649DP2007-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- 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.
- Yacine Ait-Sahalia & Andrew W. Lo, 2000. "Nonparametric Risk Management and Implied Risk Aversion," NBER Working Papers 6130, National Bureau of Economic Research, Inc.
- Fengler, Matthias R. & Härdle, Wolfgang & Mammen, Enno, 2003. "Implied volatility string dynamics," SFB 373 Discussion Papers 2003,54, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Volodymyr Perederiy, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers SFB649DP2007-060, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Yuri Golubev & Wolfgang Härdle & Roman Timonfeev, 2008. "Testing Monotonicity of Pricing Kernels," SFB 649 Discussion Papers SFB649DP2008-001, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team).
If references are entirely missing, you can add them using this form.