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Pricing with Splines


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  • Christian GOURIEROUX
  • Alain MONFORT


The exponential affine pricing principle is applied to the family of skewed Laplace historical distributions. The risk-neutral distribution is shown to belong to the same family and a closed form pricing formula for a European call is derived. This formula is a direct competitor of the Black-Scholes formula, but involves more parameters, that are location and tail parameters. This approach is extended to exponential affine spline conditional probability density function and stochastic discount factor leading to nonparametric pricing approaches. Finally the time coherency is introduced by means of a Markov specification.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2006)
Issue (Month): 82 ()
Pages: 3-33

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Handle: RePEc:adr:anecst:y:2006:i:82:p:01

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Cited by:
  1. Alberto Holly & Alain Monfort & Michael Rockinger, 2011. "Fourth order pseudo maximum likelihood methods," Post-Print, HAL hal-00815562, HAL.
  2. Fengler, Matthias & Hin, Lin-Yee, 2011. "Semi-nonparametric estimation of the call price surface under strike and time-to-expiry no-arbitrage constraints," Economics Working Paper Series, University of St. Gallen, School of Economics and Political Science 1136, University of St. Gallen, School of Economics and Political Science, revised May 2013.
  3. repec:hal:journl:halshs-00281585 is not listed on IDEAS


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