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Can Investor Beliefs be Extracted from Option Prices?

Thursday, October 9, 2014
11:00 AM - 12:00 PM
Location: Dabney Hall 110 (Treasure Room)
Peter Carr, Global Head of Market Modeling, Morgan Stanley

It is well known that option prices can be used to infer so called risk-neutral probabilities.  These risk neutral probabilities differ from investor beliefs due to distortions caused by risk aversion.  Recently, Professor Steve Ross proposed a  set of sufficient conditions under which one can separately identify beliefs and market risk aversion. In this talk, I will review Ross' recovery theorem and the surrounding theoretical and empirical work.

Papers which I plan to survey:

Finance Seminars at Caltech are funded through the generous support of the Linde Institute and Stephen A. Ross.

Series: Finance Seminar Series
For more information, please phone Ext. 4228

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