Marinelli, C;
d'Addona, S;
(2017)
Nonparametric estimates of pricing functionals.
Journal of Empirical Finance
, 44
pp. 19-35.
10.1016/j.jempfin.2017.07.005.
Preview |
Text
Marinelli_1506.06568v2.pdf - Accepted Version Download (552kB) | Preview |
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.
Type: | Article |
---|---|
Title: | Nonparametric estimates of pricing functionals |
Open access status: | An open access version is available from UCL Discovery |
DOI: | 10.1016/j.jempfin.2017.07.005 |
Publisher version: | http://doi.org/10.1016/j.jempfin.2017.07.005 |
Language: | English |
Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
Keywords: | Nadaraya–Watson estimator, Option pricing, Implied volatility estimators, Smoothing |
UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics |
URI: | https://discovery.ucl.ac.uk/id/eprint/1525436 |
Archive Staff Only
View Item |