Shape Invariant Modeling of Pricing Kernels and Risk Aversion

Maria Grith, Wolfgang Härdle and Juhyun Park

Journal of Financial Econometrics, 2013, vol. 11, issue 2, 370-399

Abstract: Several empirical studies reported that pricing kernels exhibit a common pattern across different markets. The main interest in pricing kernels lies in validating the presence of the peaks and their variability in location among curves. Motivated by this observation we investigate the problem of estimating pricing kernels based on the shape invariant model, a semi-parametric approach used for multiple curves with shape-related nonlinear variation. This approach allows us to capture the common features contained in the shape of the functions and at the same time characterize the nonlinear variability with a few interpretable parameters. These parameters provide an informative summary of the curves and can be used to make a further analysis with macroeconomic variables. Implied risk aversion function and utility function can also be derived. The method is demonstrated with the European options and returns values of the German stock index DAX. Copyright The Author, 2012. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://hdl.handle.net/10.1093/jjfinec/nbs019 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jfinec:v:11:y:2013:i:2:p:370-399

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Journal of Financial Econometrics is currently edited by Allan Timmermann and Fabio Trojani

More articles in Journal of Financial Econometrics from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().