Constrained General Regression in Pseudo-Sobolev Spaces with Application to Option Pricing
State price density (SPD) contains important information concerning market expectations. In existing literature, a constrained estimator of the SPD is found by nonlinear least squares in a suitable Sobolev space. We improve the behavior of this estimator by implementing a covariance structure taking into account the time of the trade and by considering simultaneously both the observed Put and Call option prices.
|Date of creation:||Sep 2006|
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- Yatchew, Adonis & Hardle, Wolfgang, 2006. "Nonparametric state price density estimation using constrained least squares and the bootstrap," Journal of Econometrics, Elsevier, vol. 133(2), pages 579-599, August.
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- Wolfgang Härdle & Zdenek Hlavka, 2005. "Dynamics of State Price Densities," SFB 649 Discussion Papers SFB649DP2005-021, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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- Jackwerth, Jens Carsten, 1999. "Option Implied Risk-Neutral Distributions and Implied Binomial Trees: A Literature Review," MPRA Paper 11634, University Library of Munich, Germany. Full references (including those not matched with items on IDEAS)
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