A note on conditional arbitrage-free maximum entropy densities for simulative option pricing

In this note we present a simple method to include the no-arbitrage condition into the derivation of conditional densities using the principle of maximum entropy. For the case of identically and independently distributed returns, we easily derive that the whole process estimated that way is arbitrage free. Such a process may be directly used for simulative derivation of option prices.

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Year of publication:	2009
Authors:	Herrmann, Klaus
Publisher:	Nürnberg : Friedrich-Alexander-Universität Erlangen-Nürnburg, Lehrstuhl für Statistik und Ökonometrie
Subject:	Optionspreistheorie \| Arbitrage Pricing \| Entropie \| Theorie \| Maximum Entropy density \| No Arbitrage Condition

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Series:	Diskussionspapier ; 85/2009
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	614060842 [GVK] hdl:10419/29606 [Handle] RePEc:zbw:faucse:852009 [RePEc]
Source:	EconStor

Persistent link: https://www.econbiz.de/10010299804