Economic Implications of Nonlinear Pricing Kernels

Download or read book Economic Implications of Nonlinear Pricing Kernels written by Caio Almeida and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a family of discrepancy functions, we derive nonparametric stochastic discount factor (SDFs) bounds that naturally generalize variance (Hansen and Jagannathan, 1991), entropy (Backus, Chernov and Martin, 2011), and higher-moment (Snow, 1991) bounds. These bounds are especially useful to identify how parameters affect pricing kernel dispersion in asset pricing models. In particular, they allow us to distinguish between models where dispersion comes mainly from skewness from models where kurtosis is the primary source of dispersion. We analyze the admissibility of disaster, disappointment aversion and long-run risk models with respect to these bounds.