If you need an accessible version of this item please contact JSTOR User Support

A Simple Nonparametric Approach to Derivative Security Valuation

Michael Stutzer
The Journal of Finance
Vol. 51, No. 5 (Dec., 1996), pp. 1633-1652
Published by: Wiley for the American Finance Association
DOI: 10.2307/2329532
Stable URL: http://www.jstor.org/stable/2329532
Page Count: 20
  • Download PDF
  • Cite this Item

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support
A Simple Nonparametric Approach to Derivative Security Valuation
Preview not available

Abstract

Canonical valuation uses historical time series to predict the probability distribution of the discounted value of primary assets' discounted prices plus accumulated dividends at any future date. Then the axiomatically-rationalized maximum entropy principle is used to estimate risk-neutral (equivalent martingale) probabilities that correctly price the primary assets, as well as any predesignated subset of derivative securities whose payoffs occur at this date. Valuation of other derivative securities proceeds by calculation of its discounted, risk-neutral expected value. Both simulation and empirical evidence suggest that canonical valuation has merit.

Page Thumbnails

  • Thumbnail: Page 
1633
    1633
  • Thumbnail: Page 
1634
    1634
  • Thumbnail: Page 
1635
    1635
  • Thumbnail: Page 
1636
    1636
  • Thumbnail: Page 
1637
    1637
  • Thumbnail: Page 
1638
    1638
  • Thumbnail: Page 
1639
    1639
  • Thumbnail: Page 
1640
    1640
  • Thumbnail: Page 
1641
    1641
  • Thumbnail: Page 
1642
    1642
  • Thumbnail: Page 
1643
    1643
  • Thumbnail: Page 
1644
    1644
  • Thumbnail: Page 
1645
    1645
  • Thumbnail: Page 
1646
    1646
  • Thumbnail: Page 
1647
    1647
  • Thumbnail: Page 
1648
    1648
  • Thumbnail: Page 
1649
    1649
  • Thumbnail: Page 
1650
    1650
  • Thumbnail: Page 
1651
    1651
  • Thumbnail: Page 
1652
    1652