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Nonparametric Estimates Of Option Prices And Related Quantities

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  • GIANLUCA CASSESE

    (Department of Economics, Management and Statistics, Università Milano-Bicocca, via Bicocca degli Arcimboldi, 8, Milan, I-20126, Italy)

Abstract

We propose a new nonparametric technique to estimate the call function based on the superhedging principle. This approach requires minimal assumptions on absence of arbitrage and other market imperfections. The estimates so obtained are then combined with SNP estimates of the actual density of market returns. This permits to investigate the time behavior of the relative distance between the two densities obtained. Our empirical findings suggest that the more the two densities differ, the shorter is time to maturity, suggesting a major role of uncertainty over shorter than longer horizons.

Suggested Citation

  • Gianluca Cassese, 2019. "Nonparametric Estimates Of Option Prices And Related Quantities," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(07), pages 1-29, November.
    • Handle: RePEc:wsi:ijtafx:v:22:y:2019:i:07:n:s0219024919500407
    DOI: 10.1142/S0219024919500407
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    References listed on IDEAS

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