Home > Academic Announcements > (May 20) Constrained nonparametric option pricing via state price survival function

(May 20) Constrained nonparametric option pricing via state price survival function

Last updated :2019-05-20

Topic: Constrained nonparametric option pricing via state price survival function
Speaker: Professor HUANG Mian
(Shanghai University of Finance and Economics)
Time: 14:30-17:00, Monday, May 20, 2019
Venue: Room 416, Mathematics Building, Guangzhou South Campus, SYSU

Abstract:
Estimation of the implied state price density (SPD), or equivalently risk neutral density, is an important issue in practice of option pricing. While existing nonparametric approaches demonstrate some advantages over parametric approach on parametric estimation of SPD, they suffer from problems of extrapolation, limit observations and un-normalization. We propose a novel nonparametric method for pricing derivatives assets based on the state price survival function. Shape constraints on the SPD can be imposed, including monotony, convexity and uni-modality. Asymptotic distributions of our estimates are established and a statistical test is proposed to test whether the hypothesis for the shape constraints holds. Compared to some existing methods, the proposed method improves the performance of option pricing in both simulation and an empirical study on 50ETF option data.