Nonparametric Estimation of Mean and Variance and Pricing of Securities

Authors

Keywords:

nonparametric estimation, diffusion process, interest rates, option pricing, Eurodollar, bond pricing

Abstract

This paper develops a filtering-based framework of non-parametric estimation of parameters of a diffusion process from the conditional moments of discrete observations of the process. This method is implemented for interest rate data in the Eurodollar and long term bond markets. The resulting estimates are then used to form non-parametric univariate and bivariate interest rate models and compute prices for the short term Eurodollar interest rate futures options and long term discount bonds. The bivariate model produces prices substantially closer to the market prices.

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Author Biography

Akhtar R. Siddique, Georgetown University

School of Business, Georgetown University

References

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Published

2000-04-30

How to Cite

Siddique, A. R. (2000). Nonparametric Estimation of Mean and Variance and Pricing of Securities. Economic Analysis Review, 15(1), 27–45. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/96

Issue

Vol. 15 No. 1 (2000)

Section

Articles

License

Copyright (c) 2000 Akhtar R. Siddique

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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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