Advanced Search
MyIDEAS: Login

A Semiparametric Estimation of Liquidity Effects on Option Pricing

Contents:

Author Info

  • Ferreira García, María Eva
  • Gago, Mónica
  • Rubio Irigoyen, Gonzalo

Abstract

This paper proposes a semiparametric option pricing model with liquidity, as proxied by the relative bid-ask spread. The nonparametric volatility function with liquidity as an explanatory variable is estimated using the Symmetrized Nearest Neighbors (SNN) estimator rather than the traditional kernel estimator. Moreover, special care is taken in obtaining the smoothing parameter. The in-sample performance of the model turns out to be statistically favorable relative to a competing model without liquidity. However, the out-of-sample performance of both models is quite disappointing despite the fact that we are not to reject the stability of risk-neutral densities estimated over different quarters during our sample period.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://addi.ehu.es/bitstream/10810/5903/1/1999.08.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 1999-08.

as in new window
Length:
Date of creation: Sep 1999
Date of revision:
Handle: RePEc:ehu:biltok:199908

Contact details of provider:
Postal: Avda. Lehendakari, Aguirre, 83, 48015 Bilbao
Phone: + 34 94 601 3740
Fax: + 34 94 601 4935
Email:
Web page: http://www.ea3.ehu.es
More information through EDIRC

Order Information:
Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
Email:

Related research

Keywords: multivariate kernel regression; bandwidth selection; symmetrized nearest neighbors; volatility smile; option pricing;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Eva Ferreira & Mónica Gago & Angel León & Gonzalo Rubio, 2005. "An empirical comparison of the performance of alternative option pricing models," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 483-523, September.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ehu:biltok:199908. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alcira Macías).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.