State-price densities under heterogeneous beliefs, the smile effect, and implied risk aversion

Ziegler, Alexandre

doi:10.1016/s0014-2921(01)00200-8

Cited by 23 publications

(19 citation statements)

References 23 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…r studying effects of heterogeneous beliefs - Detemple and Murthy (1994), Zapatero (1998), Basak (2000), and Ziegler (2000Ziegler ( , 2002Ziegler ( , and 2003.…”

mentioning

confidence: 99%

Incomplete information equilibria: Separation theorems and other myths

Feldman

2006

Ann Oper Res

View full text Add to dashboard Cite

The incomplete information financial economic equilibrium (IIE) literature has been growing at an increasing rate since its inception in the early 1980s. This paper examines issues and concepts essential to understanding, implementing, and testing IIE and understanding its relation to complete information equilibria (CIE). Concepts include the number of state variables in an IIE vis-à-vis the number of state variables in a corresponding CIE; the irrelevance of separation theorems to IIE and the relevance, instead, of a more general state space (re-)representation theorem; the identification of unobservable productivity processes that lead to complete information; the relative level of variable variances in a CIE and the corresponding IIE; stochastic CIE with corresponding deterministic IIE and deterministic CIE with corresponding stochastic IIE; the relationship between IIE and incomplete markets; the (im)persistence of heterogeneous beliefs; and the relation of IIE to the model uncertainty/ambiguity approaches. Understanding these concepts under IIE facilitates understanding the CIE, a special case of IIE.The incomplete information financial economic equilibrium (IIE) literature has been growing at an increasing rate since its inception in the early 1980s. This paper examines concepts and issues essential to understanding, implementing, and testing IIE. Understanding these concepts under IIE facilitates understanding complete information equilibria (CIE), a special case of IIE.The core classical financial economic models-Markowitz's portfolio theory, SharpeLintner-Mossin's CAPM, Merton's and Cox, Ingersoll, and Ross's, 1 intertemporal modelsusually specify equilibrium interest rates, asset prices, optimal portfolio rules, and optimal

show abstract

“…r studying effects of heterogeneous beliefs - Detemple and Murthy (1994), Zapatero (1998), Basak (2000), and Ziegler (2000Ziegler ( , 2002Ziegler ( , and 2003.…”

mentioning

confidence: 99%

Incomplete information equilibria: Separation theorems and other myths

Feldman

2006

Ann Oper Res

View full text Add to dashboard Cite

show abstract

“…Bates (2008) focuses on heterogeneity with respect to crash aversion. Ziegler (2002) mentioned investor heterogeneity in beliefs as a potential cause for multimodal risk-neutral distributions already but he argues in Ziegler (2007) that the heterogeneity in beliefs required to explain the pricing kernel puzzle is too large to be realistic.…”

Section: David P Brown and Jens Carsten Jackwerthmentioning

confidence: 99%

The Pricing Kernel Puzzle: Reconciling Index Option Data and Economic Theory

Brown

Jackwerth

2012

Derivative Securities Pricing and Modelling

View full text Add to dashboard Cite

The pricing kernel puzzle of Jackwerth ( 2000) The Capital Asset Pricing Model (CAPM) of William Sharpe and the option-pricing models of Fisher Black, Robert Merton, and Myron Scholes were seminal in developing our understanding of the pricing of financial assets; these works sparked a firestorm of research by economic theorists and empiricists. Despite the fact that the CAPM was developed to price equity shares while the option-pricing models were developed for options, these two sets of models share a common feature, namely a state-price Pricing and Modelling / Batten, Jonathan A.; Wagner, Niklas (Hrsg.). -Bradford : Emerald, 2012. -(Contemporary Studies in Economic and Financial Analysis ; 94). -S. 155-183. -ISBN 978-1-78052-616-4 https://dx

show abstract

“…This direct relationship remains without any explicit assumption on the correlation between the volatility and the stock price (e.g., Brigo and Mercurio, 2002), on the shape of the state-price density function, or of the underlying stock-volatility density function (e.g., Ziegler, 2002), and with the underlying stock volatility considered as the sole source of uncertainty.…”

Section: The Implied Volatility Smile In a Typical Simulation Runmentioning

confidence: 99%

“…From a different perspective, Ziegler (2002) observed that under heterogeneous beliefs about the true mean of the constant instantaneous increase in expected dividends, which is another A c c e p t e d M a n u s c r i p t 4 parameter of the Black-Scholes option pricing model, the state-price density function is not log normal. As a consequence, the non-log-normality of the equilibrium state-price density gives rise to a volatility smile.…”

Section: Introductionmentioning

confidence: 99%

The Black–Scholes model as a determinant of the implied volatility smile: A simulation study

Vagnani

2009

Journal of Economic Behavior & Organization

View full text Add to dashboard Cite

State-price densities under heterogeneous beliefs, the smile effect, and implied risk aversion

Cited by 23 publications

References 23 publications

Incomplete information equilibria: Separation theorems and other myths

Incomplete information equilibria: Separation theorems and other myths

The Pricing Kernel Puzzle: Reconciling Index Option Data and Economic Theory

The Black–Scholes model as a determinant of the implied volatility smile: A simulation study

Contact Info

Product

Resources

About