NONPARAMETRIC ESTIMATES OF OPTION PRICES AND RELATED QUANTITIES

Gianluca Cassese

International Journal of Theoretical and Applied Finance (IJTAF), 2019, vol. 22, issue 07, 1-29

Abstract: We propose a new nonparametric technique to estimate the call function based on the superhedging principle. This approach requires minimal assumptions on absence of arbitrage and other market imperfections. The estimates so obtained are then combined with SNP estimates of the actual density of market returns. This permits to investigate the time behavior of the relative distance between the two densities obtained. Our empirical findings suggest that the more the two densities differ, the shorter is time to maturity, suggesting a major role of uncertainty over shorter than longer horizons.

Keywords: Bid/Ask spreads; implied risk-neutral measure; nonparametric regression; risk aversion (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S0219024919500407

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