With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Abstract:
This paper develops probability pricing, extending cash flow pricing to measure the
willingness-to-pay for changes in probabilities. The value of a change in probabilities
can be expressed as a cash flow pricing formula for an asset with hypothetical cash flows
derived from changes in the survival function. This cash flow equivalent formulation
provides a way to construct hedging strategies and decompose probability prices
into expected-payoff and risk-compensation components. Our four applications study
the valuation of changes in the distribution of aggregate consumption, the efficiency
effects of changes in performance noise in principal-agent problems, and the welfare
implications of changes in public and private information.
More about Prof. Walther:
The seminar will be held in person.
