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Semi-nonparametric approximation and index options

Author

Listed:
  • Julia Jiang

    (University of North Carolina at Charlotte)

  • Weidong Tian

    (University of North Carolina at Charlotte)

Abstract

In an arbitrage-free securities market, all state-contingent claims and the stochastic discount factors can be approximated appropriately by index options with a semi-nonparametric method. These index options are constructed by efficient algorithms and uniform approximation error under these efficient algorithms are derived. This paper suggests a method to examine state-contingent claims and stochastic discount factors using index options in financial market regardless the market is complete or not.

Suggested Citation

  • Julia Jiang & Weidong Tian, 2019. "Semi-nonparametric approximation and index options," Annals of Finance, Springer, vol. 15(4), pages 563-600, December.
    • Handle: RePEc:kap:annfin:v:15:y:2019:i:4:d:10.1007_s10436-018-0341-4
    DOI: 10.1007/s10436-018-0341-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Semi-nonparametric; Index option; Universal approximation error;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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