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%T Dynamics of state price densities %A Härdle, Wolfgang %A Hlávka, Zdeněk %J Journal of Econometrics %N 1 %P 1-15 %V 150 %D 2009 %K Option pricing; State price density; Nonlinear least squares; Constrained estimation; JEL Classification: C13; C14; G13 %= 2011-01-17T15:42:00Z %~ http://www.peerproject.eu/ %> https://nbn-resolving.org/urn:nbn:de:0168-ssoar-212436 %X State price densities (SPDs) are an important element in applied quantitative finance. In a Black-Scholes world they are lognormal distributions but in practice volatility changes and the distribution deviates from log-normality. In order to study the degree of this deviation, we estimate SPDs using EUREX option data on the DAX index via a nonparametric estimator of the second derivative of the (European) call pricing function. The estimator is constrained so as to satisfy no-arbitrage constraints and corrects for the intraday covariance structure in option prices. In contrast to existing methods, we do not use any parametric or smoothness assumptions. %C NLD %G en %9 journal article %W GESIS - http://www.gesis.org %~ SSOAR - http://www.ssoar.info