Non-parametric option pricing models
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چکیده
The goal of non-parametric option pricing models is to price and risk mange financial derivatives in a model-free approach. Standard option pricing models need to assume a certain dynamics for the underlying. Model parameters are calibrated (or bootstrapped) to match certain conditions. These can be an exact fit to some market instruments whenever possible, a best fit otherwise, or some risk minimisation criterion. However, standard approaches do not eliminate model risk. What if the intrinsic model assumptions are flawed? What if the price dynamic is not a 1, 2 or 3 factor but much more? What if prices cannot be modelled by a diffusion model? Or if prices are not a continuous process?
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