ShanghaiTech SEM Working Paper No. 2018-002
ShanghaiTech University - School of Entrepreneurship and Management
Tsinghua University - PBC School of Finance
This paper develops a dynamic model of prices and trades in a risky security and an option, where agents use different subjective likelihood functions to interpret a public signal, but they are initially uncertain about the signa's mean or precision...
Keywords: Subjective model uncertainty, signal mean and precision, option-implied uncertainty premium, variance risk premium, trading volume.
Date Written: March 28, 2018