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Consistent Estimation of Pricing Kernels from Noisy Price Data

Statistics Theory 2008-12-10 v1 Numerical Analysis Statistical Finance Statistics Theory

Abstract

If pricing kernels are assumed non-negative then the inverse problem of finding the pricing kernel is well-posed. The constrained least squares method provides a consistent estimate of the pricing kernel. When the data are limited, a new method is suggested: relaxed maximization of the relative entropy. This estimator is also consistent. Keywords: ϵ\epsilon-entropy, non-parametric estimation, pricing kernel, inverse problems.

Keywords

Cite

@article{arxiv.math/0310223,
  title  = {Consistent Estimation of Pricing Kernels from Noisy Price Data},
  author = {Vladislav Kargin},
  journal= {arXiv preprint arXiv:math/0310223},
  year   = {2008}
}

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13 pages