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Shape invariant modelling pricing kernels and risk aversion

  • Maria Grith
  • Wolfgang Härdle
  • Juhyun Park

Pricing kernels play a major role in quantifying risk aversion and investors' preferences. Several empirical studies reported that pricing kernels exhibit a common pattern across di erent markets. Mostly visual inspection and occasionally numerically summarise are used to make comparison. With increasing amount of information updated every day, the empirical pricing kernels can be viewed as an object evolving over time. We propose a systematic modelling approach to describing the evolution of the empirical pricing kernels. The approach is based on shape invariant models. It captures the common features contained in the shape of the functions and at the same time characterises the variability between the pricing kernels based on a few interpretable parameters. The method is demonstrated with the European options and returns values of DAX index.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2009-041.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-041.

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Length: 33 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2009-041
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  1. Tijmen Daniëls & Henk Jager & Franc Klaassen, 2009. "Defending Against Speculative Attacks," SFB 649 Discussion Papers SFB649DP2009-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Wolfgang Härdle & Ostap Okhrin, 2009. "De copulis non est disputandum - Copulae: An Overview," SFB 649 Discussion Papers SFB649DP2009-031, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Wolfgang Härdle & Alena Mysickova, 2009. "Stochastic Population Forecast for Germany and its Consequence for the German Pension System," SFB 649 Discussion Papers SFB649DP2009-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Guenther Filler & Martin Odening & Ostap Okhrin & Wei Xu, 2009. "On the Systemic Nature of Weather Risk," SFB 649 Discussion Papers SFB649DP2009-002, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Barbara Choroś & Wolfgang Härdle & Ostap Okhrin, 2009. "CDO and HAC," SFB 649 Discussion Papers SFB649DP2009-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  6. Roland Strausz, 2010. "The Political Economy of Regulatory Risk," CESifo Working Paper Series 2953, CESifo Group Munich.
  7. Katja Hanewald & Thomas Post & Helmut Gründl, 2009. "Stochastic Mortality, Macroeconomic Risks, and Life Insurer Solvency," SFB 649 Discussion Papers SFB649DP2009-015, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Ulrike Busch & Dieter Nautz, 2010. "Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 11, pages 367-380, 08.
  9. Barbara Meller & Dieter Nautz, 2009. "The Impact of the European Monetary Union on Inflation Persistence in the Euro Area," SFB 649 Discussion Papers SFB649DP2009-037, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Kremer, Stephanie & Bick, Alexander & Nautz, Dieter, 2009. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Discussion Papers 2009/9, Free University Berlin, School of Business & Economics.
  11. Susanne Prantl & Alexandra Spitz-Oener, 2009. "How does entry regulation influence entry into self-employment and occupational mobility?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 769-802, October.
  12. Ostap Okhrin & Yarema Okhrin & Wolfgang Schmid, 2009. "Properties of Hierarchical Archimedean Copulas," SFB 649 Discussion Papers SFB649DP2009-014, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  13. Joanne Ho & Martin Odening, 2009. "Weather-based estimation of wildfire risk," SFB 649 Discussion Papers SFB649DP2009-032, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  14. Katja Hanewald, 2009. "Mortality modeling: Lee-Carter and the macroeconomy," SFB 649 Discussion Papers SFB649DP2009-008, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  15. Roland Strausz, 2009. "Regulatory Risk under Optimal Incentive Regulation," CESifo Working Paper Series 2638, CESifo Group Munich.
  16. Michael C. Burda & Battista Severgnini, 2009. "TFP Growth in Old and New Europe," SFB 649 Discussion Papers SFB649DP2009-033, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  17. Denis Belomestny, 2009. "Spectral estimation of the fractional order of a Lévy process," SFB 649 Discussion Papers SFB649DP2009-021, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  18. Karaman Örsal, Deniz Dilan & Droge, Bernd, 2014. "Panel cointegration testing in the presence of a time trend," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 377-390.
  19. Alessandra Amendola & Giuseppe Storti, 2009. "Combination of multivariate volatility forecasts," SFB 649 Discussion Papers SFB649DP2009-007, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  20. Ji Cao & Wolfgang Härdle & Julius Mungo, 2009. "A Joint Analysis of the KOSPI 200 Option and ODAX Option Markets Dynamics," SFB 649 Discussion Papers SFB649DP2009-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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