This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is...

We construct risk-neutral return probability distributions from S&P 500 options data over the decade 2003 to 2013, separable into pre-crisis, crisis and post-crisis regimes. The pre-crisis period is characterized by increasing realized and, especially, option-implied returns. This translates...

The news impact curve of EGARCH captures the asymmetric impact of negative news on volatility. It also captures the impact of large shocks, negative and positive. The interpretation of the curve is complicated by its composition, making it difficult to interpret its coefficients and the...

This paper aims to extend the existing literature on foreign exchange rate risk pricing. Unlike the existing studies on Canada, we use six alternative bilateral and one multilateral exchange rate proxies. Furthermore, using both a two-factor and a three-factor capital asset pricing model (CAPM),...

We give a set of identifying conditions for simultaneous equation systems (SES) with heteroskedasticity in the framework of the Gaussian quasi maximum likelihood (QML) approach. Our conditions rely on the presence of heteroskedasticity rather than exclusion restrictions. The QML estimators are...

We give a set of identifying conditions for simultaneous equation systems (SES) with heteroskedasticity in the framework of the Gaussian quasi maximum likelihood (QML) approach. Our conditions rely on the presence of heteroskedasticity rather than exclusion restrictions. The QML estimators are...

In this short note, we show investors one way to calculate ideal investment sizing by using two rules of thumb based on a simple outline of individual risk aversion. We illustrate these two heuristics, which are not widely appreciated, with thought experiments involving coin flips and ketchup &...

This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is...

The bedrock of financial economics is that there should be a tradeoff between risk and reward: an investment with low risk should have a low expected return, while one that could make you rich should also be one which could lose you a lot of money. A lot of research in finance is focused on...