Fabio Trojani (University of Geneva and AXA Chair, UniTO) (webinar)
24 March 2021 @ 12:00 - 13:15
- Past event
“Smart Stochastic Discount Factors”
Abstract: We propose a novel no-arbitrage framework, which exploits convex asset pricing constraints to study the properties of investors’ marginal utility of wealth or, more generally, Stochastic Discount Factors (SDFs). We establish a duality between minimum dispersion SDFs and suitable penalized portfolio selection problems, building the foundation for a nonparametric characterization of the feasible tradeoffs between a SDF’s pricing accuracy and its comovement with systematic risks. Empirically, we find that a minimum variance correction of a CAPM–SDF produces a Pareto optimal tradeoff. This Pareto optimal SDF only depends on two economically distinct risk factors: A market factor and a minimum variance excess return factor, which optimally bounds the aggregate mispricing of risks unspanned by market risk.
Meeting ID: 844 1484 2010 Passcode: 541184