Simulated Moment Methods for Empirical Equivalent Martingale Measures
AbstractA new simulation methodology for the empirical analysis of financial market data is introduced. The notion of an equivalent martingale measure is central to the approach. Contingent claims are priced without reference to the mean return or drift parameter. This implies that the simulator in the estimation procedure may be constructed under the equivalent martingale measure and simulation therefore takes place without specifying drift. The simulation is for conditional moments as opposed to unconditional, and the inference procedure is robust to general forms of measurement errors, serial dependencies and other econometric problems. A numerical illustration in the context of stock index options is offered.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Management Working Papers with number 1999-5.
Length: 25 pages
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Web page: http://www.econ.au.dk/afv/
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- Yu Chen & Thomas Cosimano & Alex Himonas, 2010. "Continuous time one-dimensional asset-pricing models with analytic price–dividend functions," Economic Theory, Springer, vol. 42(3), pages 461-503, March.
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