The goal of TheRiskPsychology project is to identify emotions, fears and social trust related with the financial trading activity using algorithmic trading and automated trading systems. A methodology to measure and the risk aversion based on the applied psychology principles is under test and development. The final goal is to identify the optimal psychological conditions and a model to adapt the trading software to fit the users profile related with the trading risk involved in the financial activity.
Dear Cristian,
Recently I read this (interesting) paper:
Article Measuring risk-aversion: The challenge
On the other hand, in mathematical finance there are several models that have a parameter that measure the coefficient of relative risk aversion, which can be estimated (calibratied) using specific methods (GMM, Maximum Likelihood and others).
However, probably for applied pshychology purposes, questionnaires are more usual in the literature.
This paper contains a simple risk aversion measure that is quick to administer:
Holt, C. A., & Laury, S. K. (2002). Risk aversion and incentive effects. American economic review, 92(5), 1644-1655.
you can use a utility function for measuring risk aversion check this article it will help you
Thomas, P. J. (2016). Measuring risk-aversion: The challenge. Measurement, 79, 285-301.
Through the option price information you can obtain daily measures of absolute risk-aversion (model free). Also using option prices and imposing an utility function, you can get the relative risk-aversion coefficient.
See Bliss and Panigirtzoglou (Journa of Finance, 2002, 2004), Jackwerth, , etc...
These are my conclusions about "How to measure the risk aversion?"
Thank you all for answers and contributions!
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