Economics, Econometrics and Finance
3 years ago

New method calculates risk premium without utility function, changing investment strategies.

SSRN Electronic Journal
Risk Premium and Risk Aversion With Heterogeneous Agents
Ram Sewak Dubey, Minwook Kang

Paper Summary

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The article discusses how different people have varying levels of aversion to risk, making it challenging to calculate risk premiums. The researchers found a new method to determine risk premiums using market prices of contingent claims, even without knowing individuals' utility functions.