Nonparametric Methods for the Risk-Neutral and True Densities of the Underlying Assets Inferred from Stock and Option Prices Data: Estimation and Applications

Project: National Science and Technology CouncilNational Science and Technology Council Academic Grants

Project Details

Abstract

In the literature, the information implied in options, or more generally, derivatives, has paid much attention during last decade. In this subproject, we concentrate ourselves on deriving the distribution of the asset return and on its applications to empirical finance. Thus, this research proposal attempts to reach three goals. The first is to construct the nonparametric risk-neutral and physical probability density functions by using the information obtained from both the stock prices and the option prices in the market. The second is to extend the first goal by using the options with multiple underlying assets to obtain their joint conditional risk-neutral and physical probability density functions. The third is to examine the information effect of the option market to some financial issues, such as the relationship between stochastic properties of the asset return and the investors』 behavior, arbitrage possibility, and value-at-risk evaluation, et al., by using the implied probability functions obtained in the first and second goals.

Project IDs

Project ID:PF9706-0185
External Project ID:NSC95-2416-H182-005-MY3
StatusFinished
Effective start/end date01/08/0831/07/09

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