The Risk-Neutral Equivalent Pricing of Model-Uncertainty
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arXiv
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| Format: | Preprint |
| Publié: |
2025
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| _version_ | 1866911199068684288 |
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| author | Wren, Ken Kangda |
| author_facet | Wren, Ken Kangda |
| contents | Existing approaches to asset-pricing under model-uncertainty adapt classical utility-maximization frameworks and seek theoretical comprehensiveness. We move toward practice by considering binary model-risks and by emphasizing 'constraints' over 'preference'. This decomposes viable economic asset-pricing into that of model and non-model risks separately, leading to a unique and convenient model-risk pricing formula. Its parameter, a dynamically conserved constant of model-risk inference, allows an integrated representation of ex-ante risk-pricing and bias such that their ex-post impacts are disentangled via well-known anomalies, Momentum and Low-Risk, whose risk-reward patterns acquire a fresh significance: peak-reward reveals ex-ante risk-premia, and peak-location, bias. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2502_13744 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | The Risk-Neutral Equivalent Pricing of Model-Uncertainty Wren, Ken Kangda Mathematical Finance Econometrics Existing approaches to asset-pricing under model-uncertainty adapt classical utility-maximization frameworks and seek theoretical comprehensiveness. We move toward practice by considering binary model-risks and by emphasizing 'constraints' over 'preference'. This decomposes viable economic asset-pricing into that of model and non-model risks separately, leading to a unique and convenient model-risk pricing formula. Its parameter, a dynamically conserved constant of model-risk inference, allows an integrated representation of ex-ante risk-pricing and bias such that their ex-post impacts are disentangled via well-known anomalies, Momentum and Low-Risk, whose risk-reward patterns acquire a fresh significance: peak-reward reveals ex-ante risk-premia, and peak-location, bias. |
| title | The Risk-Neutral Equivalent Pricing of Model-Uncertainty |
| topic | Mathematical Finance Econometrics |
| url | https://arxiv.org/abs/2502.13744 |