The goal of this study is to measure market prices of risk and the associated foreign exchange risk premia extending the approach proposed by Balduzzi and Robotti (2001) to an international framework. Estimations of minimum variance stochastic discount factors permits the determination of market...

Lévy processes have been successfully applied in the modeling of financial assets. Useful information such as implied volatility, skewness, and risk-preferences can be derived from market option prices. In this paper, we advocate using Esscher conjugate Lévy processes to estimate risk-neutral...

The pricing kernel is an important tool for understanding asset prices, expected returns, and investor preferences. However, empirical findings often reveal deviations from theoretical predictions, leading to the so-called "pricing kernel puzzle". This article explores the pricing kernel under...

This chapter deals with nonparametric estimation of the risk neutral density. We present three different approaches which do not require parametric functional assumptions on the underlying asset price dynamics nor on the distributional form of the risk neutral density. The first estimator is a...

The behaviour of market agents has always been extensively covered in the literature. Risk averse behaviour, described by von Neumann and Morgenstern (1944) via a concave utility function, is considered to be a cornerstone of classical economics. Agents prefer a fixed profit over uncertain...

Starting from an information process governed by a geometric Brownian motion we show that asset returns are predictable if the elasticity of the pricing kernel is not constant. Declining [Increasing] elasticity of the pricing kernel leads to mean reversion and negatively autocorrelated asset...

Modern aggregation theory and index number theory were introduced into monetary economics by Barnett (1980). The widely used Divisia monetary aggregates were based upon that paper. A key result upon which the rest of the theory depended was Barnett’s derivation of the user-cost price of...

We inject aggregate uncertainty — risk and ambiguity — into an otherwise standard business cycle model and describe its consequences. We find that increases in uncertainty generally reduce consumption, but they do not account, in this model, for either the magnitude or the persistence of the...

Using prices of both S&P 500 options and recently introduced VIX options, we study asset pricing implications of volatility risk. While pointing out the joint pricing kernel is not identified nonparametrically, we propose model-free estimates of marginal pricing kernels of the market return and...

The empirical pricing kernels estimated from index options are non-monotone (Rosenberg and Engle, 2002; Bakshi, Madan, and Panayotov, 2010) and the corresponding risk-aversion functions can be negative (Aït-Sahalia and Lo, 2000; Jackwerth, 2000). We show theoretically that these and several other...