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Content archived on 2024-06-11

A new Approach to non-parametric Estimation of State-Price Densities with applications to Option Pricing and Assessment of Market Efficiency

Objective



Research objectives and content

In response to the breakdown of the Black-Scholes model, this project attempts to develop a new arbitrage-free method of option pricing based on non-parametric estimation of the state-price density (SPD). This avoids having to directly specify the stochastic process governing the asset-price. The SPD is chosen from an exponential family constructed by minimizing the Kullback-Leibler distance from a prior density subject to a number of moment conditions. This estimate can then be used for pricing various claims, thus offering applications in risk management. Next, the stochastic process implied by the SPD is calculated and a measure of market efficiency is constructed by comparing the processes associated with SPDs at different points in the future.

Training content (objective, benefit and expected impact)

The DPhil at Oxford is the ideal preparation for an academic career in econometrics. The research itself is supported by advanced level courses conducted by the department in all relevant fields of study, and the University offers courses on specific research skills such as computer programming, as well as more general teaching skills in leading seminars and lecturing. The department has a very active student body that organises a wide range of seminars for graduates to present papers to their colleagues. Moreover, the colleges and department strongly support students in attending national and international conferences.

Links with industry / industrial relevance (22)

Fields of science (EuroSciVoc)

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Topic(s)

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Funding Scheme

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RGI - Research grants (individual fellowships)

Coordinator

The Chancellor, Masters and Scholars of the University of Oxford
EU contribution
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Address
Manor Road
OX1 3UL Oxford
United Kingdom

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Total cost

The total costs incurred by this organisation to participate in the project, including direct and indirect costs. This amount is a subset of the overall project budget.

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