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Nonparametric Estimates of Option Prices Using Superhedging

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  • Gianluca Cassese

Abstract

We propose a new nonparametric technique to estimate the CALL function based on the superhedging principle. Our approach does not require absence of arbitrage and easily accommodates bid/ask spreads and other market imperfections. We prove some optimal statistical properties of our estimates. As an application we first test the methodology on a simulated sample of option prices and then on the S&P 500 index options.

Suggested Citation

  • Gianluca Cassese, 2015. "Nonparametric Estimates of Option Prices Using Superhedging," Working Papers 293, University of Milano-Bicocca, Department of Economics, revised Feb 2015.
  • Handle: RePEc:mib:wpaper:293
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    References listed on IDEAS

    as
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    4. Ait-Sahalia, Yacine & Duarte, Jefferson, 2003. "Nonparametric option pricing under shape restrictions," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 9-47.
    5. Ritchey, Robert J, 1990. "Call Option Valuation for Discrete Normal Mixtures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(4), pages 285-296, Winter.
    6. Jackwerth, Jens Carsten & Rubinstein, Mark, 1996. " Recovering Probability Distributions from Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1611-1632, December.
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    8. P. Gagliardini & C. Gourieroux & E. Renault, 2011. "Efficient Derivative Pricing by the Extended Method of Moments," Econometrica, Econometric Society, vol. 79(4), pages 1181-1232, July.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bid/Ask spreads; Implied risk-neutral measure; Nonparametric regression;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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