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The Presentation from Generalized Recovery, an IAQF/Thalesians Talk by Lasse Heje Pedersen

December 7th, 2017

IAQF/Thalesians Seminar Series

Generalized Recovery
A Talk by Dr. Lasse Heje Pedersen

View the slides from the presentation!

 
Abstract

We characterize when physical probabilities, marginal utilities, and the discount rate can be recovered from observed state prices for several future time periods. We make no assumptions of the probability distribution, thus generalizing the time-homogeneous stationary model of Ross (2015). Recovery is feasible when the number of maturities with observable prices is higher than the number of states of the economy (or the number of parameters characterizing the pricing kernel). When recovery is feasible, our model is easy to implement, allowing a closed-form linearized solution. We implement our model empirically, testing the predictive power of the recovered expected return and other recovered statistics.

 

Biography

A professor at Copenhagen Business School and NYU and a principal at AQR Capital Management, Lasse Heje Pedersen is a distinguished academic and an asset manager. He has published a number of influential research papers on asset pricing, liquidity risk, and trading strategies, which have been cited by Ben Bernanke and other central bank governors around the world and in thousands of academic and industry papers. He has won a number of awards, including the Bernácer Prize to the best E.U. economist under 40 years of age. Further, he has served in the Liquidity Working Group meeting at the Federal Reserve Bank of New York to address liquidity issues during the global financial crisis, the New York Fed's Monetary Policy Panel, the Economic Advisory Boards of NASDAQ and FTSE, as a Director of the American Finance Association, and on the editorial boards of several journals such as the Journal of Finance and Quarterly Journal of Economics. He received his B.S. and M.S. from University of Copenhagen and his Ph.D. from Stanford University.