Finance Seminar: Peter Carr, Morgan Stanley

Thursday October 9, 2014 11:00 AM

Can Investor Beliefs be Extracted from Option Prices?

Speaker: Peter Carr, Morgan Stanley
Location: Dabney Hall 110 (Treasure Room)

It is well known that option prices can be used to infer so called risk-neutral probabilities.  These risk neutral probabilities differ from investor beliefs due to distortions caused by risk aversion.  Recently, Professor Steve Ross proposed a  set of sufficient conditions under which one can separately identify beliefs and market risk aversion. In this talk, I will review Ross' recovery theorem and the surrounding theoretical and empirical work.

Papers which I plan to survey:

Finance Seminars at Caltech are funded through the generous support of the Linde Institute and Stephen A. Ross.

Series Finance Seminar Series

Contact: Sabrina De Jaegher at Ext. 4228