Probability weighting functions obtained from Hong Kong index option market

References

• Aït-Sahalia, Y., & Lo, A. W. (2000). Nonparametric risk management and implied risk aversion. Journal of Econometrics, 94, 9–51.
   Web of Science ®Google Scholar
• Audrino, F., & Meier, P. (2012). Empirical pricing kernel estimation using a functional gradient descent algorithm based on splines. Working Paper, University of St. Gallen.
   Google Scholar
• Bakshi, G., Madan, D., & Panayotov, G. (2010). Returns of claims on the upside and the viability of U-shaped pricing kernels. Journal of Financial Economics, 97(1), 130–154. doi: 10.1016/j.jfineco.2010.03.009
   Web of Science ®Google Scholar
• Barberis, N., & Huang, M. (2008). Stocks as lotteries: The implications of probability weighting for security prices. American Economic Review, 98(5), 2066–2100. doi: 10.1257/aer.98.5.2066
   Web of Science ®Google Scholar
• Barone-Adesi, G., Mancini, L., & Shefrin, H. (2017). Estimating sentiment, risk aversion, and time preference from behavioral pricing kernel theory. Working Paper, University of Lugano.
   Google Scholar
• Beare, B. K., & Schmidt, L. D. (2016). An empirical test of pricing kernel monotonicity. Journal of Applied Econometrics, 31(2), 338–356. doi: 10.1002/jae.2422
   Web of Science ®Google Scholar
• Belomestny, D., Härdle, W. K., & Krymova, E. (2017). Sieve estimation of the minimal entropy martingale marginal density with application to pricing kernel estimation. International Journal of Theoretical and Applied Finance, 20(6), 1–21. doi: 10.1142/S0219024917500418
   Web of Science ®Google Scholar
• Black, F. (1976). Studies of stock price volatility changes. In Proceedings of the 1976 meeting of business and economic statistics section. American Statistical Association, pp. 177–181.
   Google Scholar
• Bollerslev, T. (1986). Genearlized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307–327. doi: 10.1016/0304-4076(86)90063-1
   Web of Science ®Google Scholar
• Bollerslev, T. (1987). A conditionally heteroskedastic time series model for speculative prices and rates of return. The Review of Economics and Statistics, 69(3), 542–547. doi: 10.2307/1925546
   Web of Science ®Google Scholar
• Broadie, M., Chernov, M., & Johannes, M. (2007). Model specification and risk premia: Evidence from futures options. The Journal of Finance, 62(3), 1453–1490.
   Web of Science ®Google Scholar
• Carr, P., & Madan, D. (1999). Option valuation using the fast Fourier transform. The Journal of Computational Finance, 2(4), 61–73. doi: 10.21314/JCF.1999.043
   Google Scholar
• Chabi-Yo, F. (2012). Pricing kernels with stochastic skewness and volatility risk. Management Science, 58(3), 624–640. doi: 10.1287/mnsc.1110.1424
   Web of Science ®Google Scholar
• Chabi-Yo, F., Garcia, R., & Renault, E. (2008). State dependence can explain the risk aversion puzzle. Review of Financial Studies, 21(2), 973–1011. doi: 10.1093/rfs/hhm070
   Web of Science ®Google Scholar
• Chabi-Yo, F., & Song, Z. G. (2013). Recovering the probability weights of tail events with volatility risk from option prices. Working Paper, Ohio State University.
   Google Scholar
• Chapman, D. (1997). Approximating the asset pricing kernel. Journal of Finance, 52(4), 1383–1410. doi: 10.1111/j.1540-6261.1997.tb01114.x
   Web of Science ®Google Scholar
• Chernov, M. (2003). Empirical reverse engineering of the pricing kernel. Journal of Econometrics, 116(1-2), 329–364. doi: 10.1016/S0304-4076(03)00111-8
   Web of Science ®Google Scholar
• Chernov, M., & Ghysels, E. (2000). A study towards a unified approach to the joint estimation of objective and risk neutral measures for the purpose of options valuation. Journal of Financial Economics, 56(3), 407–458. doi: 10.1016/S0304-405X(00)00046-5
   Web of Science ®Google Scholar
• Christie, A. A. (1982). The stochastic behavior of common stock variances. Journal of Financial Economics, 10(4), 407–432. doi: 10.1016/0304-405X(82)90018-6
   Web of Science ®Google Scholar
• Christoffersen, P., Heston, S., & Jacobs, K. (2013). Capturing option anomalies with a variance-dependent pricing kernel. Review of Financial Studies, 26(8), 1963–2006. doi: 10.1093/rfs/hht033
   Web of Science ®Google Scholar
• Christoffersen, P., Jacobs, K., & Mimouni, K. (2010). Volatility dynamics for the S&P 500: Evidence from realized volatility, daily returns, and option prices. The Review of Financial Studies, 23(8), 3141–3189.
   Web of Science ®Google Scholar
• Cochrane, J. H. (2001). Asset pricing. New Jersey: Princeton University Press.
   Google Scholar
• Cuesdeanu, H., & Jackwerth, J. C. (2016). The pricing kernel puzzle in forward looking data. Working Paper, University of Konstanz.
   Google Scholar
• Detlefsen, K., Härdle, W., & Moro, R. (2007). Empirical pricing kernels and investor preferences. Working Paper, Universite de Provence.
   Google Scholar
• Dierkes, M. (2009). Option-implied risk attitude under rank-dependent utility. Working Paper, University of Münster.
   Google Scholar
• Dierkes, M. (2013). Probability weighting and asset prices. Working Paper, University of Münster.
   Google Scholar
• Duan, J. C., & Fulop, A. (2009). Estimating the structural credit risk model when equity prices are contaminated by trading noises. Journal of Econometrics, 150(2), 288–296. doi: 10.1016/j.jeconom.2008.12.003
   Web of Science ®Google Scholar
• Figlewski, S., & Malik, M. F. (2014). Options on leveraged ETFs: A window on investor heterogeneity. Working Paper, New York University.
   Google Scholar
• Gollier, C. (2011). Portfolio choices and asset prices: The comparative statics of ambiguity aversion. The Review of Economic Studies, 78(4), 1329–1344. doi: 10.1093/restud/rdr013
   Web of Science ®Google Scholar
• Golubev, Y., Härdle, W., & Timofeev, R. (2014). Testing monotonicity of pricing kernels. AStA Advances in Statistical Analysis, 98(4), 305–326. doi: 10.1007/s10182-014-0225-5
   Web of Science ®Google Scholar
• Gordon, N. J., Salmond, D. J., & Smith, A. F. (1993). Novel approach to nonlinear/non-Gaussian Bayesian state estimation. IEE Proceedings F Radar and Signal Processing, 140(2), 107–113. doi: 10.1049/ip-f-2.1993.0015
   Web of Science ®Google Scholar
• Hansen, L. P., & Jagannathan, R. (1991). Implications of security market data for models of dynamic economies. Journal of Political Economy, 99, (2), 225–262. doi: 10.1086/261749
   Web of Science ®Google Scholar
• Härdle, W. K., Okhrin, Y., & Wang, W. (2015). Uniform confidence bands for pricing kernels. Journal of Financial Econometrics, 13(2), 376–413. doi: 10.1093/jjfinec/nbu002
   Web of Science ®Google Scholar
• Heston, S. L. (1993). A closed-form solution for options with stochastic volatility with applications to bond and currency options. Review of Financial Studies, 6(2), 327–343. doi: 10.1093/rfs/6.2.327
   Web of Science ®Google Scholar
• Jackwerth, J. (2000). Recovering risk aversion from option prices and realized returns. Review of Financial Studies, 13(2), 433–451. doi: 10.1093/rfs/13.2.433
   Web of Science ®Google Scholar
• Kaeck, A., & Alexander, C. (2013). Stochastic volatility jump-diffusions for European equity index dynamics. European Financial Management, 19(3), 470–496.
   Web of Science ®Google Scholar
• Kliger, D., & Levy, O. (2009). Theories of choice under risk: Insights from financial markets. Journal of Economic Behavior and Organization, 71(2), 330–346. doi: 10.1016/j.jebo.2009.01.012
   Web of Science ®Google Scholar
• Malik, S., & Pitt, M. K. (2011). Particle filters for continuous likelihood evaluation and maximization. Journal of Econometrics, 165(2), 190–209. doi: 10.1016/j.jeconom.2011.07.006
   Web of Science ®Google Scholar
• Pitt, M. K., Malik, S., & Doucet, A. (2014). Simulated likelihood inference for stochastic volatility models using continuous particle filtering. Annals of the Institute of Statistical Mathematics, 66(3), 527–552. doi: 10.1007/s10463-014-0456-y
   Web of Science ®Google Scholar
• Polkovnichenko, V. (2005). Household portfolio diversification: A case for rank-dependent preferences. Review of Financial Studies, 18(4), 1467–1502. doi: 10.1093/rfs/hhi033
   Web of Science ®Google Scholar
• Polkovnichenko, V., & Zhao, F. (2013). Probability weighting functions implied in options prices. Journal of Financial Economics, 107(3), 580–609. doi: 10.1016/j.jfineco.2012.09.008
   Web of Science ®Google Scholar
• Prelec, D. (1998). The probability weighting function. Econometrica, 66(3), 497–527. doi: 10.2307/2998573
   Web of Science ®Google Scholar
• Quiggin, J. (1993). Generalized expected utility theory: The rank-dependent model. Norwell, MA, Dordrecht, the Netherlands: Kluwer Academic Publishers.
   Google Scholar
• Rosenberg, J., & Engle, R. F. (2002). Empirical pricing kernels. Journal of Financial Economics, 64(3), 341–372. doi: 10.1016/S0304-405X(02)00128-9
   Web of Science ®Google Scholar
• Shefrin, H., & Statman, M. (2000). Behavioral portfolio theory. Journal of Financial and Quantitative Analysis, 35(2), 127–151. doi: 10.2307/2676187
   Web of Science ®Google Scholar
• Song, Z. G., & Xiu, D. C. (2016). A tale of two option markets: Pricing kernels and volatility risk. Journal of Econometrics, 190(1), 176–196.
   Web of Science ®Google Scholar
• Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5(4), 297–323. doi: 10.1007/BF00122574
   Web of Science ®Google Scholar
• Wang, B. (2017). Probability weighting and asset prices: Evidence from mergers and acquisitions. Working Paper, Fordham University.
   Google Scholar
• Wu, X. Y., Ma, C. Q., & Wang, S. Y. (2012). Warrant pricing under GARCH diffusion model. Economic Modelling, 29(6), 2237–2244. doi: 10.1016/j.econmod.2012.06.020
   Web of Science ®Google Scholar
• Wu, X. Y., Zhou, H. L., & Wang, S. Y. (Forthcoming). Estimation of market prices of risks in G.A.R.C.H. diffusion model. Economic Research-Ekonomska Istraživanja, doi: 10.1080/1331677X.2017.1421989
   Web of Science ®Google Scholar
• Yang, H., & Kanniainen, J. (2017). Jump and volatility dynamics for the S&P 500: Evidence for infinite-activity jumps with non-affine volatility dynamics from stock and option markets. Review of Finance, 21(2), 811–844. doi: 10.1093/rof/rfw001
   Web of Science ®Google Scholar
• Ziegler, A. (2007). Why does implied risk aversion smile? Review of Financial Studies, 20(3), 859–904. doi: 10.1093/rfs/hhl023
   Web of Science ®Google Scholar