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Nonparametric Methods in Continuous-Time Finance: A Selective Review

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  • Cai, Zongwu
  • Hong, Yongmiao
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    Abstract

    This paper gives a selective review on the recent developments of nonparametric methods in continuous-time finance, particularly in the areas of nonparametric estimation of diffusion processes, nonparametric testing of parametric diffusion models, and nonparametric pricing of derivatives. For each financial context, the paper discusses the suitable statistical concepts, models, and modeling procedures, as well as some of their applications to financial data. Their relative strengths and weakness are discussed. Much theoretical and empirical research is needed in this area, and more importantly, the paper points to several aspects that deserve further investigation. --

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    Bibliographic Info

    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2003,15.

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    Date of creation: 2003
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    Handle: RePEc:zbw:sfb373:200315

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    Keywords: Continuous time model; derivative pricing; jump process; kernel smoothing; nonparametric test; non-stationarity; options;

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    Cited by:
    1. Chen, Song Xi & Gao, Jiti & Tang, Chenghong, 2005. "A test for model specification of diffusion processes," MPRA Paper 11976, University Library of Munich, Germany, revised Feb 2007.
    2. Jianqing Fan, 2004. "A selective overview of nonparametric methods in financial econometrics," Papers math/0411034, arXiv.org.

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