Implied Volatility and Risk Aversion in a Simple Model with Uncertain Growth
18 Pages Posted: 10 Mar 2006 Last revised: 26 Oct 2009
Date Written: October 23, 2009
Abstract
We show that a simple equilibrium model with uncertain growth is able to simultaneously generate patterns in implied volatility and risk aversion that are similar to the ones observed in the data. In addition, the model produces an implied pricing kernel that is increasing for particular levels of wealth.
Keywords: parameter uncertainty, option pricing, implied volatility, implied risk aversion
JEL Classification: C13, G12, G13
Suggested Citation: Suggested Citation
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