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Maximum Likelihood Estimation Using Price Data Of The Derivative Contract

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  • Jin‐Chuan Duan

Abstract

This article develops a general methodology that uses the observed prices of a derivative contract to compute maximum likelihood parameter estimates for an unobserved asset value process. the use of this estimation methodology is demonstrated in two applications: Vasicek's term structure model and deposit insurance pricing. This methodology can also be useful in the empirical analysis of complex financial contracts involving embedded options.

Suggested Citation

  • Jin‐Chuan Duan, 1994. "Maximum Likelihood Estimation Using Price Data Of The Derivative Contract," Mathematical Finance, Wiley Blackwell, vol. 4(2), pages 155-167, April.
    • Handle: RePEc:bla:mathfi:v:4:y:1994:i:2:p:155-167
    DOI: 10.1111/j.1467-9965.1994.tb00055.x
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