Option-Implied Risk-Neutral Distributions and Risk Aversion

Jens Carsten Jackwerth

ISBN 10: 0943205662 / ISBN 13: 9780943205663

Published by Research Foundation of AIMR, 2004

About this Item

Most items will be dispatched the same or the next working day. A copy that has been read, but is in excellent condition. Pages are intact and not marred by notes or highlighting. The spine remains undamaged.

Seller Inventory # rev2492895636

Bibliographic Details

• Title: Option-Implied Risk-Neutral Distributions and Risk Aversion
• Publisher: Research Foundation of AIMR
• Publication Date: 2004
• Language: English
• ISBN 10: 0943205662
• ISBN 13: 9780943205663
• Binding: Soft cover
• Condition: Very Good
• Weight: 136.1 grams

About this title

Synopsis

Analysts are accustomed to using prices for the information they contain. A stock price, for example, can be thought of as an expected value of future cash flows. Each futures price and option price tells the analyst a bit more about the probability distribution under which those expectations should be accepted. These pieces of information provide the probability distribution of the price. In this Research Foundation monograph, Jens Jackwerth explains why for pricing purposes, the analyst uses the risk-neutral distribution and details the pitfalls of applying this distribution immediately for forecasting. Finally, the risk-neutral distributions can be compared with estimated actual distributions to uncover investor risk preferences. Jackwerth warns, however, of an empirical irregularity that is emerging: The risk-neutral distribution, the actual distribution, and the implied preferences are incompatible with each other.