EconPapers    
Economics at your fingertips  
 

Nonparametric estimates of pricing functionals

Carlo Marinelli and d’Addona, Stefano
Authors registered in the RePEc Author Service: Stefano d'Addona ()

Journal of Empirical Finance, 2017, vol. 44, issue C, 19-35

Abstract: We analyze the empirical performance of several non-parametric estimators of the pricing functional for European options, using historical put and call prices on the S&P500 during the year 2012. Two main families of estimators are considered, obtained by estimating the pricing functional directly, and by estimating the (Black–Scholes) implied volatility surface, respectively. In each case simple estimators based on linear interpolation are constructed, as well as more sophisticated ones based on smoothing kernels, à la Nadaraya–Watson. The results based on the analysis of the empirical pricing errors in an extensive out-of-sample study indicate that a simple approach based on the Black–Scholes formula coupled with linear interpolation of the volatility surface outperforms, both in accuracy and computational speed, all other methods.

Keywords: Nadaraya–Watson estimator; Option pricing; Implied volatility estimators; Smoothing (search for similar items in EconPapers)
JEL-codes: G13 C14 C52 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539817300646
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Nonparametric estimates of pricing functionals (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:44:y:2017:i:c:p:19-35

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-01-25
Handle: RePEc:eee:empfin:v:44:y:2017:i:c:p:19-35