Browsing by Author "Carolissen, Kendall"

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    Utility driven change of measure
    (2014) Carolissen, Kendall; Taylor, David; McWalter, Thomas
    We demonstrate how a change of probability measure can be carried out based on the risk preference of a representative investor. Using the stochastic discount factor and the Radon-Nikod´ym derivative, we are able to obtain the risk-neutral measure given a real world measure and a preference structure defined by a utility function. This methodology is then used to attribute the sources of skewness in the risk-neutral measure.