A note on conditional arbitrage-free maximum entropy densities for simulative option pricing
AbstractIn this note we present a simple method to include the no-arbitrage condition into the derivation of conditional densities using the principle of maximum entropy. For the case of identically and independently distributed returns, we easily derive that the whole process estimated that way is arbitrage free. Such a process may be directly used for simulative derivation of option prices. --
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Bibliographic InfoPaper provided by Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Statistics and Econometrics in its series Discussion Papers with number 85/2009.
Date of creation: 2009
Date of revision:
Maximum Entropy density; No Arbitrage Condition;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
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