Nonparametric Estimation Of State-Price Densities Implicit In Financial Asset Prices  

Oleh:

Sahalia, Yacine Ait ; Lo, Andrew W.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 53 no. 2 (Apr. 1998), page 499-547.
Topik: Nonparametric; state estimation; financial assets; stocks
Fulltext: p 499.pdf (942.35KB)

Isi artikel

Implicit in the prices of traded financial assets are Arrow–Debreu prices or, with continuous states, the state-price density (SPD). We construct a nonparametric estimator for the SPD implicit in option prices and we derive its asymptotic sampling theory. This estimator provides an arbitrage-free method of pricing new, complex, or illiquid securities while capturing those features of the data that are most relevant from an asset-pricing perspective, for example, negative skewness and excess kurtosis for asset returns, and volatility “smiles” for option prices. We perform Monte Carlo experiments and extract the SPD from actual S&P 500 option prices.

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