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Risk neutral versus real-world distribution on puclicly listed bank corporations


  • Michel Dacorogna


  • Juan-José Francisco Miguelez

    (ESSEC Business School - Essec Business School)

  • Marie Kratz

    (ESSEC Business School - Essec Business School, MAP5 - UMR 8145 - Mathématiques Appliquées Paris 5 - UPD5 - Université Paris Descartes - Paris 5 - INSMI - Institut National des Sciences Mathématiques et de leurs Interactions - CNRS - Centre National de la Recherche Scientifique)


In this study, we examine different quantitative methods to recover the risk neutral distribution function associated to the prices of option on bank shares. This is useful for a wide range of applications, such as determining the implicit State guarantee that systemic financial institutions benefit from the State, or looking if the market prices correctly the fat tails of financial returns. We assess the performance of these techniques in various ways, including comparing market option prices and historical Values-at-Risk to option prices and Value-at-Risk implied by the estimated risk neutral distribution. We find that, contrary to what is expected for a market composed of risk averse investors, the latter is much smaller than the one obtained from real data. We discuss our results with respect to the theory of risk neutral valuation and investor risk preference.

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  • Michel Dacorogna & Juan-José Francisco Miguelez & Marie Kratz, 2016. "Risk neutral versus real-world distribution on puclicly listed bank corporations," Working Papers hal-01373071, HAL.
  • Handle: RePEc:hal:wpaper:hal-01373071
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    References listed on IDEAS

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    More about this item


    risk neutral probability; SIFI; extremes; fat tail; option pricing; real world probability; value-­at-­risk;
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