A1935
Title: Random preferences, truncated distributions, and the pricing kernel: A note
Authors: Maria Magdalena Vich Llompart - Washington College (United States) [presenting]
Luiz Vitiello - Essex Business School University of Essex (United Kingdom)
Abstract: An asset pricing model is developed where risk aversion is random and has a truncated-normal distribution. We show that the distributional parameters related to risk aversion, and the limits of integration of the truncated distribution change the slope of the pricing kernel. That is, while some parameters rotate the pricing kernel clockwise, others rotate it anti-clockwise, which may have implications for asset and derivative pricing. We also show that our pricing kernel contains several others as special cases.
