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Nonparametric methods and option pricing

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Author Info

  • GHYSELS, Eric

    () (Pennsylvania State University and CIRANO)

  • PATILEA, Valentin

    () (Institut de Statistique, Université catholique de Louvain, Louvain-la-Neuve, Belgium)

  • RENAULT, Eric

    (GREMAQ and IDEI, Université des Sciences Sociales de Toulouse and Institut Universitaire de France)

  • TORRES, Olivier

    () (GREMARS, Université de Lille 3)

Abstract

In this paper, we survey some of the recent nonparametric estimation methods which were developed to price derivative contracts. We focus on equity options and start with a so-called model-free approach which involves very little financial theory. Next we discuss nonparametric and semi-parametric methods of option pricing and illustrate the different approaches.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997075.

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Date of creation: 01 Oct 1997
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Handle: RePEc:cor:louvco:1997075

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  1. René Garcia & Éric Renault, 1998. "Risk Aversion, Intertemporal Substitution, and Option Pricing," CIRANO Working Papers 98s-02, CIRANO.
  2. Yacine Aït-Sahalia & Andrew W. Lo, . "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," CRSP working papers 332, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Hardle, Wolfgang & Linton, Oliver, 1986. "Applied nonparametric methods," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 38, pages 2295-2339 Elsevier.
  4. Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Universite de Montreal, Departement de sciences economiques.
  5. Broadie, Mark & Detemple, Jerome & Ghysels, Eric & Torres, Olivier, 2000. "Nonparametric estimation of American options' exercise boundaries and call prices," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1829-1857, October.
  6. repec:fth:inseep:9329 is not listed on IDEAS
  7. Peter Bossaerts & Pierre Hillion, 1993. "A Test Of A General Equilibrium Stock Option Pricing Model," Mathematical Finance, Wiley Blackwell, vol. 3(4), pages 311-347.
  8. Gouriéroux, Christian & Monfort, Alain & Tenreiro, Carlos, 1994. "Kernel m-estimators : non parametric diagnostics for structural models," CEPREMAP Working Papers (Couverture Orange) 9405, CEPREMAP.
  9. Bossaerts, P. & Hillion, P., 1995. "Local Parametric Analysis of Hedging in Discrete Time," Discussion Paper 1995-23, Tilburg University, Center for Economic Research.
  10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  11. Ait-Sahalia, Yacine, 1996. "Nonparametric Pricing of Interest Rate Derivative Securities," Econometrica, Econometric Society, vol. 64(3), pages 527-60, May.
  12. Aït-Sahalia, Yacine. & Bickel, Peter J. & Stoker, Thomas M., 1994. "Goodness-of-fit tests for regression using kernel methods," Working papers 3747-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  13. Hardle, W. & Vieu, P., 1990. "Kernel regression smoothing of time series," CORE Discussion Papers 1990031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Yatchew, Adonis & Hardle, Wolfgang, 2006. "Nonparametric state price density estimation using constrained least squares and the bootstrap," Journal of Econometrics, Elsevier, vol. 133(2), pages 579-599, August.
  2. René Garcia & Ramazan Gençay, 1998. "Pricing and Hedging Derivative Securities with Neural Networks and a Homogeneity Hint," CIRANO Working Papers 98s-35, CIRANO.
  3. Ramazan Gencay & Aslihan Salih, 2003. "Degree of Mispricing with the Black-Scholes Model and Nonparametric Cures," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 73-101, May.
  4. René Garcia & Eric Ghysels & Éric Renault, 2004. "The Econometrics of Option Pricing," CIRANO Working Papers 2004s-04, CIRANO.

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