Daníelsson, J., H. S. Shin, and J.-P. Zigrand (2009). Risk appetite and endogenous risk.
Download paper
Market volatility reflects traders' actions, while their actions de- pend on perceptions of risk. Equilibrium volatility is the fixed point of the mapping that takes perceived risk to actual risk. We solve for equilibrium stochastic volatility in a dynamic setting where risk- neutral traders operate
@ARTICLE{DanielssonShinZigrand2009b,
author = {J{\'o}n Dan{\'i}elsson and Hyun Song Shin and Jean-Pierre
Zigrand},
title = {Risk appetite and endogenous risk},
year = 2009,
}