ShanghaiTech SEM Working Paper No. 2018-002
Ming Guo
ShanghaiTech University - School of Entrepreneurship and Management
Hao Zhou
Tsinghua University - PBC School of Finance
Abstract
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...
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Keywords: Subjective model uncertainty, signal mean and precision, option-implied uncertainty premium, variance risk premium, trading volume.
JEL Classification: G11, G12, G13.
Date Written: March 28, 2018
Available at SSRN: http://ssrn.com/abstract=3159702
