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Implied volatility and risk aversion in a simple model with uncertain growth

Author

Listed:
  • Frederik Lundtofte

    () (Dept. of Economics, Lund University)

Abstract

We show that a simple equilibrium model with uncertain growth is able to simultaneously generate patterns in implied volatility and risk aversion that are similar to the ones observed in the data.

Suggested Citation

  • Frederik Lundtofte, 2010. "Implied volatility and risk aversion in a simple model with uncertain growth," Economics Bulletin, AccessEcon, vol. 30(1), pages 182-191.
  • Handle: RePEc:ebl:ecbull:eb-09-00109
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P16.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. René Garcia & Richard Luger & Eric Renault, 2000. "Asymmetric Smiles, Leverage Effects and Structural Parameters," Working Papers 2000-57, Center for Research in Economics and Statistics.
    3. Jackwerth, Jens Carsten, 2000. "Recovering Risk Aversion from Option Prices and Realized Returns," Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 433-451.
    4. Fousseni Chabi-Yo & René Garcia & Eric Renault, 2008. "State Dependence Can Explain the Risk Aversion Puzzle," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 973-1011, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    parameter uncertainty; option pricing; implied volatility; implied risk aversion;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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