Inferring option-implied investors' risk preferences

Daniel Giamouridis

Applied Financial Economics, 2005, vol. 15, issue 7, 479-488

Abstract: Risk preference functions across the wealth domain are estimated from option prices and asset realized returns using: (a) a semiparametric probability model, the Edgeworth Series Expansion model, and (b) a new data set consisting of eurodollar and WTI oil markets' data. The empirical preference functions are examined and found consistent with the market conditions of the period under study. The risk aversion estimates are also similar to these found by alternative methodologies.

Date: 2005
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DOI: 10.1080/09603100500056684

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