Nonparametric Pricing of Interest Rate Derivative Securities / Yacine Ait-Sahalia.

Format:

Book

Author/Creator:

Ait-Sahalia, Yacine.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5345.

NBER working paper series no. w5345

Language:

English

Subjects (All):

Derivative securities--Mathematical models.

Derivative securities.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Cambridge, Massachussetts : National Bureau of Economic Research, [1995]

Summary:

We propose a nonparametric estimation procedure for continuous- time stochastic models. Because prices of derivative securities depend crucially on the form of the instantaneous volatility of the underlying process, we leave the volatility function unrestricted and estimate it nonparametrically. Only discrete data are used but the estimation procedure still does not rely on replacing the continuous- time model by some discrete approximation. Instead the drift and volatility functions are forced to match the densities of the process. We estimate the stochastic differential equation followed by the short term interest rate and compute nonparametric prices for bonds and bond options.

Notes:

Print version record

November 1995.