Dynamics of State Price Densities

Abstract Both large oil price increases and decreases are associated with deteriorating economic conditions. The projection of the state price density (SPD) onto oil returns estimated from oil futures and option prices displays a U-shaped pattern. Because investors assign high state prices to large negative and large positive oil returns, the U-shaped SPD may steepen in either tail when economic conditions deteriorate. The positive return region of the SPD is more closely related to economic conditions. The oil SPD contains information about economic conditions and future security returns that is distinct from the information in the stock index SPD.

Download Full-text

Equilibrium Pricing in Incomplete Markets

Journal of Financial and Quantitative Analysis ◽

10.1017/s002210900000199x ◽

2005 ◽

Vol 40 (4) ◽

pp. 833-848 ◽

Cited By ~ 9

Author(s):

Abdelhamid Bizid ◽

Elyès Jouini

Keyword(s):

Stochastic Volatility ◽

Incomplete Markets ◽

Stochastic Volatility Model ◽

Time Model ◽

Equilibrium Pricing ◽

Discrete Time Model ◽

Price Process ◽

State Price ◽

Volatility Model ◽

Market Framework

AbstractGiven the exogenous price process of some assets, we constrain the price process of other assets that are characterized by their final payoffs. We deal with an incomplete market framework in a discrete-time model and assume the existence of the equilibrium. In this setup, we derive restrictions on the state-price deflators. These restrictions do not depend on a particular choice of utility function. We investigate numerically a stochastic volatility model as an example. Our approach leads to an interval of admissible prices that is more robust than the arbitrage pricing interval.

Download Full-text

A State Price Index

10.3386/w0320 ◽

1979 ◽

Cited By ~ 4

Author(s):

Victor Fuchs ◽

Robert Michael ◽

Sharon Scott

Keyword(s):

Price Index ◽

State Price

Download Full-text

Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices

10.3386/w5351 ◽

1995 ◽

Cited By ~ 38

Author(s):

Yacine Ait-Sahalia ◽

Andrew Lo

Keyword(s):

Nonparametric Estimation ◽

Asset Prices ◽

Financial Asset ◽

State Price

Download Full-text

Nonparametric Estimation of Fractional Option Pricing Model

Mathematical Problems in Engineering ◽

10.1155/2020/8858821 ◽

2020 ◽

Vol 2020 ◽

pp. 1-8

Author(s):

Qing Li ◽

Songlin Liu ◽

Misi Zhou

Keyword(s):

Option Pricing ◽

Stock Exchange ◽

Option Price ◽

Integral Function ◽

The State ◽

Pricing Model ◽

State Price ◽

Black Scholes ◽

Option Pricing Model ◽

State Price Density

The establishment of the fractional Black–Scholes option pricing model is under a major condition with the normal distribution for the state price density (SPD) function. However, the fractional Brownian motion is deemed to not be martingale with a long memory effect of the underlying asset, so that the estimation of the state price density (SPD) function is far from simple. This paper proposes a convenient approach to get the fractional option pricing model by changing variables. Further, the option price is transformed as the integral function of the cumulative density function (CDF), so it is not necessary to estimate the distribution function individually by complex approaches. Finally, it encourages to estimate the fractional option pricing model by the way of nonparametric regression and makes empirical analysis with the traded 50 ETF option data in Shanghai Stock Exchange (SSE).

Download Full-text