Simulation-based Estimation of Contingent-claims Prices

Simulation-based Estimation of Contingent-claims Prices By

Simulation-based Estimation of Contingent-claims Prices1

A new methodology is proposed to estimate theortical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-bas...

Semiparametric pricing of multivariate contingent claims

This paper develops and implements a methodology for pricing multivariate contingent claims (MVCC's) based on semiparametric estimation of the multivariate risk-neutral density function. This methodology generates MVCC prices which are consistent with current market prices of univariate contingent claims. This method allows for completely general marginal risk-neutral densities and is compatibl...

The Valuation of Contingent Claims under Portfolio Constraints: Reservation Buying and Selling Prices

With constrained portfolios contingent claims do not generally have a unique price that rules out arbitrage opportunities. Earlier studies have demonstrated that when there are constraints on the hedge portfolio, a no-arbitrage price interval for any contingent claim exists. I consider the more realistic case where the constraints are imposed on the total portfolio of each investor and define r...

Event risk , contingent claims , and the temporal resolution of uncertainty ∗

We study the pricing and hedging of contingent claims that are subject to Event Risk which we define as rare and unpredictable events whose occurrence may be correlated to, but cannot be hedged perfectly with standard marketed instruments. The superreplication costs of such event sensitive contingent claims (ESCC), in general, provide little guidance for the pricing of these claims. Instead, we...