This paper constructs an equilibrium model of option-implied preferences with model uncertainty. Our theoretical model shows that an investor with model uncertainty has a higher level of risk aversion than an investor without model uncertainty, which is helpful in explaining the equity premium puzzle. Using the detection-error probabil-ity, we estimate the option-implied uncertainty aversion. Empirical ¯ndings show that
the estimated option-implied risk aversion with model uncertainty is larger than that without model uncertainty. With the higher level of uncertainty aversion, the empirical uncertainty premium shows the steeper smirk pattern across the wealth, which looks
very similar to the smirk pattern of the implied volatility of S&P 500 index options.
JEL classication: G13; C13;
학회소식
학회소식
[2010년 제 2차] Option-Implied Preferences with Model Uncertainty
작성자 : 관리자
조회수 : 995
게시일 :
2010-06-08
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