Confidence Intervals for State Price Densities

The state price density is a second derivative of the discounted European options prices with respect to the strike price. We use Maximum Likelihood method to derive a simple estimator of the curve such that it is decreasing, convex and its second derivative integrates to one. Confidence intervals for this estimator can be constructed using standard Maximum Likelihood theory. The method works well in praxis as illustrated on the DAX option prices data.

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Year of publication:	2003
Authors:	Hlávka, Zdeněk
Institutions:	Sonderforschungsbereich 373, Quantifikation und Simulation ökonomischer Prozesse, Wirtschaftswissenschaftliche Fakultät
Subject:	option pricing \| state price density estimation \| nonlinear least squares \| confidence intervals

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Extent:	application/pdf
Series:	SFB 373 Discussion Papers.
Type of publication:	Book / Working Paper
Notes:	Number 2003,34
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010983696