As part of the thematic program at the Wolfgang Pauli Institute (WPI)
Vienna
"The interplay between Financial and Insurance Mathematics, Statistics and
Econometrics" there will be two talks
on Wednesday January 13, 2010 at the seminar room C714 at the
Pauli Institute
<http://www.wpi.ac.at/address.php>
11:00-12:00 Jean Jacod (Université Paris VI): tba
15:00-16:00 Viktor Todorov (Kellogg School of Management): Tails, Fears
and Risk Premia
Abstract: We show that the compensation for rare events accounts for a
large fraction of the average equity and variance risk premia. As such,
our results suggest that any satisfactory equilibrium-based asset pricing
model must be able to generate both large and time-varying compensations
for fears of disasters. Our empirical investigations are essentially
model-free, involving new extreme value theory approximations based on
``medium'' size jumps in high-frequency intraday prices for estimating the
expected values of the tails under the statistical probability measure,
and short maturity out-of-the money options and new model-free implied
variation measures for estimating the corresponding risk neutral
expectations.
Friedrich Hubalek