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Title:Empirical pricing kernels and investor preferences PDF Logo
Authors:Detlefsen, Kai
Härdle, Wolfgang Karl
Moro, Rouslan A.
Issue Date: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
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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