Subjective probability distributions of nonlinear payoffs: Recovering option payoff, agent’s utility, and pricing kernel distributions

IF 3.8 3区经济学 Q1 BUSINESS, FINANCE

North American Journal of Economics and Finance Pub Date : 2025-01-01 DOI:10.1016/j.najef.2025.102362

Akira Yamazaki

引用次数: 0

Abstract

This paper proposes a general method to recover the subjective probability distributions of nonlinear payoffs from option prices. We show that the characteristic function of the distribution is represented as the present value of a static option portfolio with complex-valued portfolio weights. By applying Fourier inversion, we derive the subjective distribution from the characteristic function. Using the recovery method with the S&P 500 index option data, we examine the historical behaviors of subjective distributions for agent’s utility and pricing kernels. Additionally, we elucidate the theoretical relation between expected option returns and pricing kernels, offering enhanced insights compared to previous studies.

查看原文本刊更多论文

求助全文

约1分钟内获得全文求助全文

来源期刊

North American Journal of Economics and Finance Multiple-

CiteScore

7.30

自引率

8.30%

发文量

168

期刊介绍： The focus of the North-American Journal of Economics and Finance is on the economics of integration of goods, services, financial markets, at both regional and global levels with the role of economic policy in that process playing an important role. Both theoretical and empirical papers are welcome. Empirical and policy-related papers that rely on data and the experiences of countries outside North America are also welcome. Papers should offer concrete lessons about the ongoing process of globalization, or policy implications about how governments, domestic or international institutions, can improve the coordination of their activities. Empirical analysis should be capable of replication. Authors of accepted papers will be encouraged to supply data and computer programs.