Confidence Intervals for State Price Densities

The state price density is a second derivative of the discounted European options prices with respect to the strike price. We use Maximum Likelihood method to derive a simple estimator of the curve such that it is decreasing, convex and its second derivative integrates to one. Confidence intervals for this estimator can be constructed using standard Maximum Likelihood theory. The method works well in praxis as illustrated on the DAX option prices data.

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Year of publication:	2003
Authors:	Hlávka, Zdeněk
Publisher:	Berlin : Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
Subject:	Optionspreistheorie \| Maximum-Likelihood-Methode \| Schätztheorie \| Nichtlineares Verfahren \| Schätzung \| Index-Futures \| Theorie \| Deutschland \| option pricing \| state price density estimation \| nonlinear least squares \| confidence intervals

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Series:	SFB 373 Discussion Paper ; 2003,34
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	379166097 [GVK] hdl:10419/22249 [Handle] RePEc:zbw:sfb373:200334 [RePEc]
Source:	EconStor

Persistent link: https://www.econbiz.de/10010296470