A1417
Title: Implied willow tree method for the term structure of moments risk premia
Authors: Bing Dong - Shanghai University of International Business and Economics (China)
Wei Xu - Ryerson university (Canada)
Zhenyu Cui - Stevens Institute of Technology (United States) [presenting]
Abstract: A data-driven implied willow tree method is proposed to extract the joint implied risk-neutral density functions of asset prices at several future time points from market-observable options prices with various strikes and maturities. The implied risk-neutral density functions are then transformed into the density functions under the physical measure, and the accuracy and robustness of our method are examined in recovering the pricing kernel on both synthetic and empirical data sets. Finally, we study the forward-term structure of moment risk premia based on the S\&P 500 options data from 2006 to 2019 to explore the impact of market jumps and investors' behaviors.
