A study towards a unified approach to the joint estimation of objective and risk neutral measures for the purpose of options valuation

Chernov, Mikhail; Ghysels, Éric

doi:10.1016/s0304-405x(00)00046-5

Cited by 500 publications

(314 citation statements)

References 40 publications

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“…E.g., Chernov and Ghysels (2000) fitted the Heston (1993) Breeden and Litzenberger (1978) result, the authors obtain the risk-neutral distribution, which they change into the physical distribution through division by the pricing kernel, which is given by the marginal utility of either a power or exponential utility function. They are able to assess the likelihood that the observed, future returns stem from the physical distribution using the method of Diebold, Gunther, and Tay (1998) and Diebold, Tay, and Walis (1999).…”

Section: Assumptions Restricting the Functional Form Of The Pricing Kmentioning

confidence: 99%

The pricing kernel puzzle: survey and outlook

Cuesdeanu

Jackwerth

2017

Ann Finance

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Section: Assumptions Restricting the Functional Form Of The Pricing Kmentioning

confidence: 99%

The pricing kernel puzzle: survey and outlook

Cuesdeanu

Jackwerth

2017

Ann Finance

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“…We test and compare VaR measures based on GARCH-type volatilities estimated from historical returns with measures based on implied and estimated volatilities from options contracts written on the S&P500 index. We u s e t h e v olatility measures constructed by Chernov and Ghysels (2000).…”

Section: Motivationmentioning

confidence: 99%

“…We apply our testing methodology to a portfolio consisting of a long position in the S&P500 index with an investment horizon of one day. The data applied was graciously provided to us by Chernov and Ghysels (2000). They provide us with S&P500 index returns which are recorded daily from November 1985 to October 1994, corresponding to 2209 observations.…”

Section: Application To Daily Returns On the Sandp500mentioning

confidence: 99%

Testing and comparing Value-at-Risk measures

Christoffersen

Hahn

Inoue

2001

Journal of Empirical Finance

174

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“…This flexibility is in fact supported empirically. Using joint time-series data on the risky stock (the S&P 500 index) and European-style options (the S&P 500 index options), recent studies have documented the importance of the risk premia implicit options, particularly those associated with the volatility and jump risks [Chernov and Ghysels (2000), Pan (2002), Benzoni (1998), and Bakshi and Kapadia (2001)]. Consistent with these findings, Coval and Shumway (2001) report the expected option returns that cannot be explained by the risk and return tradeoff associated with the usual diffusive price shock B.…”

mentioning

confidence: 99%

Dynamic Derivative Strategies

Liu

Pan

2002

SSRN Journal

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This paper studies the optimal investment strategy of an investor who can access not only the bond and the stock markets, but also the derivatives market. We consider the investment situation where, in addition to the usual diffusive price shocks, the stock market experiences sudden price jumps and stochastic volatility. The dynamic portfolio problem involving derivatives is solved in closed-form. Our results show that derivatives are important in providing access to the risk and return tradeoffs associated with the volatility and jump risks. Moreover, as a vehicle to the volatility risk, derivatives are used by non-myopic investors to exploit the time-varying opportunity set; and as a vehicle to the jump risk, derivatives are used by investors to dis-entangle their simultaneous exposure to the diffusive and jump risks in the stock market. In addition, derivatives investing also affects investors' stock position because of the interaction between the two markets. Finally, calibrating our model to the S&P 500 index and options markets, we find sizable portfolio improvement for taking advantage of derivatives. * Liu is with the Anderson School at UCLA, jliu@anderson.ucla.edu. Pan is with the MIT Sloan School of Management, junpan@mit.edu. We benefited from discussions with Darrell Duffie, and comments from David Bates, Luca Benzoni, Harrison Hong, Andrew Lo, Alex Shapiro, and seminar participants at Duke, NYU, and U of Mass. We thank the participants at the NBER 2002 winter conference, especially Michael Brandt (the discussant), for helpful comments. We also thank an anonymous referee for very helpful comments that gave the paper its current form.

show abstract

A study towards a unified approach to the joint estimation of objective and risk neutral measures for the purpose of options valuation

Cited by 500 publications

References 40 publications

The pricing kernel puzzle: survey and outlook

The pricing kernel puzzle: survey and outlook

Testing and comparing Value-at-Risk measures

Dynamic Derivative Strategies

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