Resource title

Empirical pricing kernels and investor preferences

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Resource description

This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is reproduced by adopting the hypothesis of heterogeneous individual investors whose utility functions have a switching point between bullish and bearish attitudes. The inverse problem of finding the distribution of individual switching points is formulated in the space of stock returns by discretization as a quadratic optimization problem. The resulting distributions vary over time and correspond to different market regimes.

Resource author

Kai Detlefsen, Wolfgang Karl Härdle, Rouslan A. Moro

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25189

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Adapt according to the presented license agreement and reference the original author.