2023/01/13 by Yoshihiro Shirai, Shirai, Yoshihiro
Decision Sciences · Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Financial Markets and Investment Strategies #Mathematical Finance (q-fin.MF) #Risk and Portfolio Optimization
paper · pdf · doi:10.48550/arxiv.2301.05333
openalex publication_date 2023/01/13 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
The purpose of this paper is to utilize statistical methodologies to infer from market prices of assets and their derivatives the magnitude of the set of a measure M that defines acceptance sets of risky future cash flows. Specifically, we estimate upper and lower boundaries of the compensation needed for a given bilateral gamma distributed future cash flow to be acceptable. We show that prospects theory provides a natural interpretation of the behaviors implied by such boundaries, which are not compatible with expected utility theory over terminal wealth. Boundaries for bilateral gamma risk neutral scale parameters for given speed parameters are also estimated and tested against market data and, in particular, comparisons are made with known empirical facts about the magnitude of the acceptance set of a common class of risk measures.