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State Price Density Estimation and Nonparametric Pricing of Basket Options
Department of Statistics, Stanford University, Stanford, CA, USA
Department of Statistics, Stanford University, Stanford, CA, USA
- 1 Department of Statistics, Stanford University, Stanford, CA, USA
- 2 Department of Statistics, Stanford University, Stanford, CA, USA
Journal of Mathematical Finance·Volume 05 (2015)·Pages 448–456·Published 26 November 2015·DOI10.4236/jmf.2015.55038
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Abstract
This paper develops a novel method to price basket options by using an application-driven approach to estimating the state price density of the basket or the joint state price density of the asset prices in the basket. In this connection, we also discuss the difference between the application-driven and the traditional statistical approach to density estimation.
KeywordsBasket OptionsPortfolio WeightsJoint State Price Density
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