A comparison of risk aversion between markets

  • José Pedro Moura Tavares (Student)

Student thesis: Master's Thesis


In this study we perform a comparison between the Dow Jones Industrial Average and the FTSE 100 indexes concerning their estimated risk aversions. Risk neutral densities are calculated for both indexes using a polynomial-lognormal, a GB2 and a mixture of two lognormal distributions; we show that the best fit to observed data is obtained using the latter. For the method of best fit, and assuming a power utility function, the risk aversion of investors is calculated using a maximum likelihood method and a likelihood ratio. The FTSE 100 presents the highest value of risk aversion of the two indexes, as well as the lowest volatility. A negative correlation is found between risk aversion estimates and the volatility of the underlying index.
Date of Award2013
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorJoni Kokkonen (Supervisor)


  • Lognormal mixture
  • Generalised beta
  • Hermite polynomials
  • Risk neutral densities
  • Risk transformations


  • Mestrado em Gestão

Cite this