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Dynamic Semiparametric Factor Models in Risk Neutral Density Estimation

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Author Info
Enzo Giacomini
Wolfgang Härdle
Volker Krätschmer

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Abstract

Dimension reduction techniques for functional data analysis model and approximate smooth random functions by lower dimensional objects. In many applications the focus of interest lies not only in dimension reduction but also in the dynamic behaviour of the lower dimensional objects. The most prominent dimension reduction technique - functional principal components analysis - however, does not model time dependences embedded in functional data. In this paper we use dynamic semiparametric factor models (DSFM) to reduce dimensionality and analyse the dynamic structure of unknown random functions by means of inference based on their lower dimensional representation. We apply DSFM to estimate the dynamic structure of risk neutral densities implied by prices of option on the DAX stock index.

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Publisher Info
Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-038.

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Length: 19 pages
Date of creation: May 2008
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Handle: RePEc:hum:wpaper:sfb649dp2008-038

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Related research
Keywords: dynamic factor models; dimension reduction; risk neutral density;

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cizek, P. & Haerdle, W. & Spokoiny, V., 2007. "Adaptive Pointwise Estimation in Time-Inhomogeneous Time-Series Models," Discussion Paper 2007-35, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Ray-Bing Chen & Meihui Guo & Wolfgang Härdle & Shih-Feng Huang, 2008. "Independent Component Analysis Via Copula Techniques," SFB 649 Discussion Papers SFB649DP2008-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  3. Katja Hanewald, 2008. "Beyond the business cycle - factors driving aggregate mortality rates," SFB 649 Discussion Papers SFB649DP2008-031, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  4. Nikolaus Hautsch & Dieter Hess & Christoph Müller, 2008. "Price Adjustment to News with Uncertain Precision," SFB 649 Discussion Papers SFB649DP2008-025, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  5. Silke Hüttel & Oliver Mußhoff & Martin Odening & Nataliya Zinych, 2008. "Estimating Investment Equations in Imperfect Capital Markets," SFB 649 Discussion Papers SFB649DP2008-016, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  6. Joachim Gassen, 2008. "Are stewardship and valuation usefulness compatible or alternative objectives of financial accounting?," SFB 649 Discussion Papers SFB649DP2008-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  7. Rainer Schulz & Markus Staiber & Martin Wersing & Axel Werwatz, 2008. "The Accuracy of Long-term Real Estate Valuations," SFB 649 Discussion Papers SFB649DP2008-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  8. Dietmar Fehr & Dorothea Kübler & David Danz, 2008. "Information and Beliefs in a Repeated Normal-form Game," SFB 649 Discussion Papers SFB649DP2008-026, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  9. Wolfgang Härdle & Julius Mungo, 2008. "Value-at-Risk and Expected Shortfall when there is long range dependence," SFB 649 Discussion Papers SFB649DP2008-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  10. Taleb Ahmad & Wolfgang Härdle & Sigbert Klinke & Shafeeqah Al Awadhi, 2008. "Using R, LaTeX and Wiki for an Arabic e-learning platform," SFB 649 Discussion Papers SFB649DP2008-030, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  11. Anton Andriyashin & Wolfgang Härdle & Roman Timofeev, 2008. "Recursive Portfolio Selection with Decision Trees," SFB 649 Discussion Papers SFB649DP2008-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  12. Alexander Cuntz, 2008. "Genetic Codes of Mergers, Post Merger Technology Evolution and Why Mergers Fail," SFB 649 Discussion Papers SFB649DP2008-029, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  13. Astrid Matthey, 2007. "Do Public Banks have a Competitive Advantage?," Jena Economic Research Papers in Economics 2007-100, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
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  14. Astrid Matthey & Nadja Dwenger, 2007. "Don't aim too high: the potential costs of high aspirations," Jena Economic Research Papers in Economics 2007-097, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
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