Consistent Estimation of Pricing Kernels from Noisy Price Data

Vladislav Kargin ()

Papers from arXiv.org

Abstract: If pricing kernels are assumed non-negative then the inverse problem of finding the pricing kernel is well-posed. The constrained least squares method provides a consistent estimate of the pricing kernel. When the data are limited, a new method is suggested: relaxed maximization of the relative entropy. This estimator is also consistent. Keywords: $\epsilon$-entropy, non-parametric estimation, pricing kernel, inverse problems.

Date: 2003-10
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