Open AccessDesigning and Applying a Nonparametric Option Valuation Model
Author(s) -
Jan Vlachý
Publication year - 2016
Publication title -
financial assets and investing
Language(s) - English
Resource type - Journals
eISSN - 1804-509X
pISSN - 1804-5081
DOI - 10.5817/fai2016-1-3
Subject(s) - nonparametric statistics , valuation (finance) , econometrics , valuation of options , volatility (finance) , economics , financial economics , computer science , finance
This paper derives, tests and discusses a comprehensive and easy to use nonparametric option-valuation model, using a representative set of historical data on underlying asset returns jointly with an assumption of minimalistic implied information on current market trend and volatility expectations. Its testing on empirical data from Warsaw Stock Exchange trading for two distinct periods of 2014 suggests that such distribution-free models are capable of delivering useful market insights as well as applicability features, in particular wherever derivative markets are relatively new, incomplete, illiquid, or with regard to the valuation of real options.