The representation property of any semi-martingale as a Brownian motion subordinated by a possibly correlated stochastic clock is used to model the risk-neutral measure of asset prices. A procedure for the non-parametric calibration of the density of the stochastic clock using cross section of market prices is proposed. The approach maps the set of market option prices contained in bid/ask intervals to a set of compatible probability measures. In contrast to other estimation approaches that derive only one density, the proposed method derives a set containing all the measures that are compatible with the observed option prices.
L. Barzanti, P. Foschi (2009). Time changes and option pricing: non parametric estimation of the stochastic clock. BOLOGNA : Università degli Studi di Bologna.
Time changes and option pricing: non parametric estimation of the stochastic clock
BARZANTI, LUCA;
2009
Abstract
The representation property of any semi-martingale as a Brownian motion subordinated by a possibly correlated stochastic clock is used to model the risk-neutral measure of asset prices. A procedure for the non-parametric calibration of the density of the stochastic clock using cross section of market prices is proposed. The approach maps the set of market option prices contained in bid/ask intervals to a set of compatible probability measures. In contrast to other estimation approaches that derive only one density, the proposed method derives a set containing all the measures that are compatible with the observed option prices.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
