Statistics of Risk Aversion
Information 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.
|Date of creation:||May 2007|
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- 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.
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"Nonparametric Risk Management and Implied Risk Aversion,"
NBER Working Papers
6130, National Bureau of Economic Research, Inc.
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- 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.
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