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Izvorni znanstveni članak
https://doi.org/10.1080/1331677X.2019.1638285

Probability weighting functions obtained from Hong Kong index option market

Xinyu Wu ; School of Finance, Anhui University of Finance and Economics, Bengbu, China
Haibin Xie ; School of Banking and Finance, University of International Business and Economics, Beijing, China
Xindan Li ; School of Management and Engineering, Nanjing University, Nanjing, China

Puni tekst: engleski, pdf (2 MB) str. 1922-1943 preuzimanja: 65* citiraj
APA 6th Edition
Wu, X., Xie, H. i Li, X. (2019). Probability weighting functions obtained from Hong Kong index option market. Economic research - Ekonomska istraživanja, 32 (1), 1922-1943. https://doi.org/10.1080/1331677X.2019.1638285
MLA 8th Edition
Wu, Xinyu, et al. "Probability weighting functions obtained from Hong Kong index option market." Economic research - Ekonomska istraživanja, vol. 32, br. 1, 2019, str. 1922-1943. https://doi.org/10.1080/1331677X.2019.1638285. Citirano 31.03.2020.
Chicago 17th Edition
Wu, Xinyu, Haibin Xie i Xindan Li. "Probability weighting functions obtained from Hong Kong index option market." Economic research - Ekonomska istraživanja 32, br. 1 (2019): 1922-1943. https://doi.org/10.1080/1331677X.2019.1638285
Harvard
Wu, X., Xie, H., i Li, X. (2019). 'Probability weighting functions obtained from Hong Kong index option market', Economic research - Ekonomska istraživanja, 32(1), str. 1922-1943. https://doi.org/10.1080/1331677X.2019.1638285
Vancouver
Wu X, Xie H, Li X. Probability weighting functions obtained from Hong Kong index option market. Economic research - Ekonomska istraživanja [Internet]. 2019 [pristupljeno 31.03.2020.];32(1):1922-1943. https://doi.org/10.1080/1331677X.2019.1638285
IEEE
X. Wu, H. Xie i X. Li, "Probability weighting functions obtained from Hong Kong index option market", Economic research - Ekonomska istraživanja, vol.32, br. 1, str. 1922-1943, 2019. [Online]. https://doi.org/10.1080/1331677X.2019.1638285

Sažetak
In this paper we estimate the pricing kernel from the Hong Kong index option market and obtain the empirical probability weighting functions based on the rank-dependent expected utility. The empirical pricing kernel is estimated semi-parametrically as the ratio of the risk-neutral and objective densities. We employ a two-step estimation procedure to estimate the objective and risk-neutral densities under a consistent parametric framework of the non-affine generalised autoregressive conditional heteroskedasticity (G.A.R.C.H.) diffusion model. In the first step, we develop a continuous particle filters-based maximum likelihood estimation method to estimate the objective parameters of the G.A.R.C.H. diffusion model using the Hang Seng Index (H.S.I.) returns. In the second step of our estimation, we depart from the usual pure calibration approach and use the H.S.I. option prices to estimate the risk-neutral parameters of the G.A.R.C.H. diffusion model by constraining certain parameters to be consistent with the time-series behaviour of H.S.I. returns. Based on the estimated objective and risk-neutral parameters, the objective and risk-neutral densities are obtained by inverting the corresponding characteristic functions. Empirical results indicate that the empirical pricing kernel estimated from the Hong Kong index option market is non-monotonic and the estimated probability weighting functions are S-shaped, which implies that investors underweight small probability events and overweight large ones

Ključne riječi
Pricing kernel; probability weighting; rank-dependent utility; option prices; G.A.R.C.H. diffusion mode

Hrčak ID: 228866

URI
https://hrcak.srce.hr/228866

Posjeta: 99 *