Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25189
Authors: 
Detlefsen, Kai
Härdle, Wolfgang Karl
Moro, Rouslan A.
Year of Publication: 
2007
Series/Report no.: 
SFB 649 discussion paper 2007,017
Abstract: 
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.
Subjects: 
Utility function
pricing kernel
behvioral finance , risl aversion
risk proclivity
Heston model
JEL: 
G12
G13
C50
Document Type: 
Working Paper

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