Generalized Recovery

Christian Skov Jensen, David Lando, Lasse Heje Pedersen

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

We characterize when physical probabilities, marginal utilities, and the discount rate can be recovered from observed state prices for several future time periods. Our characterization makes no assumptions of the probability distribution, thus generalizing the time-homogeneous stationary model of Ross (2015). Our characterization is simple and intuitive, linking recovery to the relation between the number of time periods and the number of states. When recovery is feasible, our model is easy to implement, allowing a closed-form linearized solution. We implement our model empirically, testing the predictive power of the recovered expected return and other recovered statistics.
Original languageEnglish
Publication date2016
Number of pages59
Publication statusPublished - 2016
EventThe 43rd European Finance Association Annual Meeting (EFA 2016) - BI Norwegian Business School, Oslo, Norway
Duration: 17 Aug 201620 Aug 2016
Conference number: 43
http://www.efa2016.org/

Conference

ConferenceThe 43rd European Finance Association Annual Meeting (EFA 2016)
Number43
LocationBI Norwegian Business School
CountryNorway
CityOslo
Period17/08/201620/08/2016
Internet address

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