Risk-neutral moment-based estimation of affine option pricing models / by Bruno Feunou and Cédric Okou.: FB3-5/2017-55E-PDF
“This paper provides a novel methodology for estimating option pricing models based on risk-neutral moments. We synthesize the distribution extracted from a panel of option prices and exploit linear relationships between risk-neutral cumulants and latent factors within the continuous time affine stochastic volatility framework. We find that fitting the Andersen, Fusari, and Todorov (2015b) option valuation model to risk-neutral moments captures the bulk of the information in option prices. Our estimation strategy is effective, easy to implement, and robust, as it allows for a direct linear filtering of the latent factors and a quasi-maximum likelihood estimation of model parameters. From a practical perspective, employing risk-neutral moments instead of option prices also helps circumvent several sources of numerical errors and substantially lessens the computational burden inherent in working with a large panel of option contracts"--Abstract, p. ii.
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| Department/Agency | Bank of Canada. |
|---|---|
| Title | Risk-neutral moment-based estimation of affine option pricing models / by Bruno Feunou and Cédric Okou. |
| Series title | Bank of Canada staff working paper, 1701-9397 ; 2017-55 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "December 2017." Includes bibliographical references (p. 23-35). Includes abstract in French. |
| Publishing information | [Ottawa] : Bank of Canada, 2017. |
| Author / Contributor | Feunou, Bruno. Okou, Cédric. |
| Description | ii, 59 p. : charts (some col.) |
| Catalogue number |
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| Subject terms | Stock markets Assets Prices Statistical analysis |
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