Economics at your fingertips  

Robust estimation of risk‐neutral moments

Manuel Ammann and Alexander Feser

Journal of Futures Markets, 2019, vol. 39, issue 9, 1137-1166

Abstract: This study provides an in‐depth analysis of how to estimate risk‐neutral moments robustly. A simulation and an empirical study show that estimating risk‐neutral moments presents a trade‐off between (a) the bias of estimates caused by a limited strike price domain and (b) the variance of estimates induced by microstructural noise. The best trade‐off is offered by option‐implied quantile moments estimated from a volatility surface interpolated with a local‐linear kernel regression and extrapolated linearly. A similarly good trade‐off is achieved by estimating regular central option‐implied moments from a volatility surface interpolated with a cubic smoothing spline and flat extrapolation.

Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
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:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2020-07-04
Handle: RePEc:wly:jfutmk:v:39:y:2019:i:9:p:1137-1166