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  5. Stock valuation by utility indifference pricing

Stock valuation by utility indifference pricing

年度:2017 NO: 著者:Jiro Hodoshima, Tetsuya Misawa, Yoshio Miyahara

We evaluate stocks based on utility indifference pricing assuming stock returns
follow the class of discrete normal mixture distributions.
The utility indifference price with an exponential utility function
is the only candidate for the suitable value measure.
We value stocks by the inner rate of risk aversion, proposed by Miyahara (2014),
which is the degree of risk aversion that makes zero
the utility indifference price with the exponential utility function.
We compare stock valuation by the inner rate of risk aversion and Sharpe ratio for selective U.S. stocks.
Valuation by the inner rate of risk aversion is more relevant, reflecting the
entire distribution of stock returns, than that by Sharpe ratio which represents
performance by the first
two moments.