Nonparametric pricing of multivariate contingent claims

Abstract

This paper derives and implements a nonparametric, arbitrage- free technique for multivariate contingent claims (MVCC) pricing. This technique is based on nonparametric estimation of a multivariate risk- neutral density function using data from traded options markets and historical asset returns. “New” multivariate claims are priced using expectations under this measure. An appealing feature of nonparametric arbitrage- free derivative pricing is that fitted prices are obtained that are consistent with traded option prices and are not based on specific restrictions on the underlying asset price process or the functional form of the risk-neutral density.