Characteristic Function-Based Estimation of Affine Option Pricing Models

Download or read book Characteristic Function-Based Estimation of Affine Option Pricing Models written by Yannick Dillschneider and published by . This book was released on 2019 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we derive explicit expressions for certain joint moments of stock prices and option prices within a generic affine stochastic volatility model. Evaluation of each moment requires weighted inverse Fourier transformation of a function that is determined by the risk-neutral and real-world characteristic functions of the state vector. Explicit availability of such moment expressions allows to devise a novel GMM approach to jointly estimate real-world and risk-neutral parameters of affine stochastic volatility models using observed individual option prices. Moreover, the moment expressions may be used to include option price information into other existing moment-based estimation approaches.