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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27023
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| Title: | Pricing Multivariate Contingent Claims using Estimated Risk-neutral
Density Functions |
| Authors: | Rosenberg, Joshua |
| Issue Date: | Jun-1997 |
| Series/Report no.: | FIN-98-057 |
| Abstract: | Many asset price series exhibit time-varying volatility, jumps, and
other features inconsistent with assumptions about the underlying price
process made by standard multivariate contingent claims (MVCC) pricing
models. This paper develops an interpolative technique for pricing MVCCs
' flexible NLS pricing ' that involves the estimation of a flexible
multivariate risk-neutral density function implied by existing asset
prices. As an application, the flexible NLS pricing technique is used to
value several bivariate contingent claims dependent on foreign exchange
rates in 1993 and 1994. The bivariate flexible risk-neutral density
function more accurately prices existing options than the bivariate
lognormal density implied by a multivariate geometric brownian motion.
In addition, the bivariate contingent claims analyzed have substantially
different prices using the two density functions suggesting flexible NLS
pricing may improve accuracy over standard methods. |
| URI: | http://hdl.handle.net/2451/27023 |
| Appears in Collections: | Finance Working Papers
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