How impactful was 9/11 on market’s risk aversion?
: option implied probability distributions and risk preferences

  • David Ribeiro Ferrão (Student)

Student thesis: Master's Thesis

Abstract

This study assesses the impact of 9/11 on the Market’s risk aversion using S&P500 options. Risk Neutral densities are extracted through Lognormal Polynomials, Generalized Beta Distribution of the second kind and Mixture of two Lognormal Distributions methods, being the latter, the one which performs the best. There is an evident change in terms of density shape after 9/11. Risk aversion coefficients were estimated assuming an Expected Utility model and a Rank Dependent Expected Utility model. Under Expected Utility model, risk aversion coefficient yield an apparent irrational negative number, while RDEU exhibits positive values, with an increase in risk aversion after 9/11.
Date of Award17 Oct 2017
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorJosé Corrêa Guedes (Supervisor)

Keywords

  • Risk neutral densities
  • Risk aversion
  • Expected utility
  • Rank dependent expected utility

Designation

  • Mestrado em Finanças

Cite this

Links

'