Lévy Information and the Aggregation of Risk Aversion

When investors have heterogeneous attitudes towards risk, it is reasonable to assume that each investor has a pricing kernel, and that these individual pricing kernels are aggregated to form a market pricing kernel. The various investors are then buyers or sellers depending on how their individual pricing kernels compare to that of the market. In Brownian-based models, we can represent such heterogeneous attitudes by letting the market price of risk be a random variable, the distribution of whic...