A nonparametric model that includes non-Gaussian characteristics of skewness and kurtosis is proposed based on the cubic market capital asset pricing model. It is an equilibrium pricing model but risk-neutral valuation can be introduced through return data transformation. The model complies with...

This paper generalizes the nonparametric approach to option pricing of Stutzer (1996) by demonstrating that the canonical valuation methodology in- troduced therein is one member of the Cressie-Read family of divergence mea- sures. While the limiting distribution of the alternative measures is...

The main objective of this paper is to analyze the behavior of the term structure of the WTI futures market between 2002 and 2009, period known by a sustained price rise followed by a price slump and again by a new price rise. To achieve this goal, we use Principal Component Analysis (PCA) to...

One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This asumption can be fulfilled only in perfectly liquid markets. Since most markets are illqiud, this asumption might be too...

An analogy based call option pricing model is put forward. The model provides a new explanation for the implied volatility skew puzzle. The analogy model is consistent with empirical findings about returns from well studied option strategies such as covered call writing and zero-beta straddles....

We propose a nonparametric approach for estimating single-index, binary-choice models when parametric models such as Probit and Logit are potentially misspecified. The new approach involves two steps: first, we estimate index coefficients using sliced inverse regression without specifying a...

The Pearsonian coefficient of correlation as a measure of association between two variates is highly prone to the deleterious effects of outlier observations (in data). Statisticians have proposed a number of formulas to obtain robust measures of correlation that are considered to be less...

Granger (1966) describes how the spectral shape of an economic variable concentrates spectral mass at low frequencies, declining smoothly as frequency increases. Despite a discussion about how to assess robustness of his results, the empirical exercise focused on the evidence obtained from a...

Most existing semi-parametric estimation procedures for binary choice models are based on the maximum score, maximum likelihood, or nonlinear least squares principles. These methods have two problems. They are difficult to compute and they may result in multiple local optima because they require...

The impact of trade liberalization on productivity and economic growth has received considerable attention in recent policy debate. Besides the theory, there is also a large body of empirical literature on the impact of trade policy reforms on productivity growth. We contribute to this...