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Consistent Estimation of Pricing Kernels from Noisy Price Data

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  • Vladislav Kargin

    (Cornerstone Research)

Abstract

If pricing kernels are assumed non-negative then the inverse problem of finding the pricing kernel is well-posed. The constrained least squares method provides a consistent estimate of the pricing kernel. When the data are limited, a new method is suggested: relaxed maximization of the relative entropy. This estimator is also consistent.

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File URL: http://128.118.178.162/eps/fin/papers/0311/0311001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0311001.

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Length: 13 pages
Date of creation: 03 Nov 2003
Date of revision:
Handle: RePEc:wpa:wuwpfi:0311001

Note: Type of Document - pdf; prepared on Win2000; pages: 13
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Web page: http://128.118.178.162

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Keywords: epsilon-entropy; non-parametric estimation; pricing kernel; inverse problems;

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