Non-Parametric American Option Valuation Using Cressie-Read Divergences

Haley & Walker (2010) suggest that their use of Cressie-Read family within Stutzer's (1996) non-parametric method for valuing European option might be extended to Alcock & Carmichael's (2008) non-parametric valuation of American options. We derive this suite of non-parametric methods to price and hedge American-style options. We test their efficacy using a large sample of traded American style options struck on the S&P100 index. We find that in general, the suite of non-parametric valuation schemes generate more accurate price estimates than traditional parametric schemes, especially for longer-dated options