BFS 2002

Poster Presentation

A number of methodologies have been so far proposed in academic literature for the estimation of the implied Risk Neutral Densities. The present work develops a new non-parametric methodology for the pricing of contingent claims and the extraction of the stochastic discount factor. When no restrictions on the underlying process are imposed, the associated measure is a random distribution and under some weak assumptions, it admits an expansion with stochastic coefficients. The major advantage of the proposed estimator is that it results in a weak form solution as a consequence of no strict properties being imposed apart from the measurability of the coefficients of the expansion. Considering the underlying process as time varying a new non-parametric methodology is developed for the estimation of the implied RNDs and a number of theoretical issues associated with the estimation of implied RNDs are addressed using empirical data.