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Heterogeneous Beliefs in Asset Pricing: When Investors’ Estimates of Asset Volatility Disagree *
Author(s) -
Lin ChienChih,
Lin FengTeng
Publication year - 2010
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/j.2041-6156.2010.01030.x
Subject(s) - volatility (finance) , volatility swap , stochastic volatility , implied volatility , volatility smile , economics , financial economics , econometrics , asset (computer security) , capital asset pricing model , volatility risk premium , computer science , computer security
The paper addresses the influence on asset prices of agents’ disagreement regarding asset volatility. Using a stochastic volatility model and assuming that the market is complete, a state‐price density incorporating heterogeneous beliefs in volatility is derived and used to compute asset prices. How agent disagreement regarding volatility influences asset prices and volatility is discussed and empirical results are provided.