Smart Stochastic Discount Factors

Speaker

Fabio Trojani

Date
Monday 25 Oct 2021, 16:00 - 17:00
Type
Seminar
Spoken Language
English
Room
Online
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We propose a novel no-arbitrage framework, which exploits convex asset pricing constraints to study investors' marginal utility of wealth or, more generally, Stochastic Discount Factors (SDFs).

We establish a duality between minimum dispersion SDFs and penalized portfolio selection problems, building the foundation for characterizing the feasible tradeoffs between a SDF's pricing accuracy and its comovement with systematic risks. Empirically, a minimum variance CAPM-SDF produces a Pareto optimal tradeoff. This SDF only depends on two distinct risk factors: A traded market factor and a minimum variance excess return that bounds the mispricing of risks unspanned by market shocks.

Participation

If you would like to participate in the seminar, please send an email to the secretariat of Econometrics, eb-secr@ese.eur.nl.

More information

Secretariat Econometrics
Phone: +31 (0)10 408 12 59/ 12 64
Email: eb-secr@ese.eur.nl

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