Is the Price Kernel Monotone?

We provide a new method to derive the state price density per unit probabilitybased on option prices and GARCH model. We derive the risk neutraldistribution using the result in Breeden and Litzenberger (1978) and thehistorical density adapting the GARCH model of Barone-Adesi, Engle, andMancini (2008). We find that using a large dataset and introducing non-Gaussian innovations, the pricing kernel puzzle that arises in Jackwerth(2000) disappears both in a single day and over an average of different dayswith options expiring at the same maturity.[...]

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Year of publication:	2010-04-01
Authors:	Barone-Adesi, Giovanni ; Dallo, Hakim
Institutions:	National Centre of Competence in Research - Financial Valuation and Risk Management
Subject:	Preis \| Verteilung \| Total claim size distribution \| Wahrscheinlichkeit \| Kernel <Informatik> \| Kernel hazard estimation

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Extent:	233472 bytes 36 p. application/pdf
Series:	FINRISK Working Paper Series Working Paper No. 649
Type of publication:	Book / Working Paper
Language:	English
Classification:	G12 - Asset Pricing ; G13 - Contingent Pricing; Futures Pricing ; G14 - Information and Market Efficiency; Event Studies ; Specific management methods ; Market research ; Terms and pricing policy ; Individual Working Papers, Preprints ; No country specification
Source:	USB Cologne (business full texts)

Persistent link: https://www.econbiz.de/10009522186