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Persistent link: https://www.econbiz.de/10013186553
The entropy valuation of option (Stutzer, 1996) provides a risk-neutral probability distribution (RND, an equivalent martingale measure) as the pricing measure by minimizing the Kullback–Leibler (KL) divergence between the empirical probability distribution and its risk-neutral counterpart....
Persistent link: https://www.econbiz.de/10014351819
This article constructs an entropy pricing framework by incorporating a set of informative risk-neutral moments (RNMs) extracted from the market-available options as constraints. Within the RNM-constrained entropic framework, a unique distribution close enough to the correct one is obtained, and...
Persistent link: https://www.econbiz.de/10012826872
We propose a new nonparametric method for valuing American options. We extract the risk neutral moments using a set of option data and incorporate them into the entropy framework as constraints to recover the risk-neutral pricing measure. With the recovered risk-neutral measure, we generate...
Persistent link: https://www.econbiz.de/10012857390