Arbeitspapier
Risk-adjusted option-implied moments
Option-implied moments, like implied volatility, contain useful information about an underlying asset's return distribution, but are derived under the risk-neutral probability measure. This paper shows how to convert risk-neutral moments into the corresponding physical ones. The main theoretical result expresses moments under the physical probability measure in terms of observed option prices and the preferences of a representative investor. Based on this result, we investigate several empirical questions. We show that a model of a representative investor with CRRA utility can explain the variance risk premium for the S&P500 index but fails to capture variance and skewness risk premiums simultaneously. Moreover, we present methods to estimate forward-looking market risk premiums and investors' disappointment aversion implied in market prices.
- Language
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Englisch
- Bibliographic citation
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Series: CFR Working Paper ; No. 14-07
- Classification
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Wirtschaft
Contingent Pricing; Futures Pricing; option pricing
Financial Forecasting and Simulation
Model Construction and Estimation
Forecasting Models; Simulation Methods
- Subject
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option-implied moments
risk adjustment
variance risk premium
market risk premium
disappointment aversion
- Event
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Geistige Schöpfung
- (who)
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Brinkmann, Felix
Korn, Olaf
- Event
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Veröffentlichung
- (who)
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University of Cologne, Centre for Financial Research (CFR)
- (where)
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Cologne
- (when)
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2014
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Brinkmann, Felix
- Korn, Olaf
- University of Cologne, Centre for Financial Research (CFR)
Time of origin
- 2014
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