While mainstream financial theories and applications assume thatasset returns are normally distributed and individual preferencesare quadratic, the overwhelming empirical evidence shows otherwise.Indeed, most of the asset returns exhibit "fat-tails"distributions and investors exhibit asymmetric preferences. Theseempirical findings lead to the development of a new area ofresearch dedicated to the introduction of higher order moments inportfolio theory and asset pricing models.
Multi-moment asset pricing is a revolutionary new way ofmodeling time series in finance which allows various degrees oflong-term memory to be generated. It allows risk and prices of riskto vary through time enabling the accurate valuation of long-livedassets.
This book presents the state-of-the art in multi-moment assetallocation and pricing models and provides many new developments ina single volume, collecting in a unified framework theoreticalresults and applications previously scattered throughout thefinancial literature. The topics covered in this comprehensivevolume include: four-moment individual risk preferences,mathematics of the multi-moment efficient frontier, coherentasymmetric risks measures, hedge funds asset allocation underhigher moments, time-varying specifications of (co)moments andmulti-moment asset pricing models with homogeneous andheterogeneous agents.
Written by leading academics, Multi-moment Asset Allocationand Pricing Models offers a unique opportunity to explore thelatest findings in this new field of research.