arXiv 2 Sep 2023 · Finance — Statistical Finance
arXiv:2309.00943 · PDF · DOI · OpenAlex · Extracted main text
This paper proposes the option-implied Fourier-cosine method, iCOS, for non-parametric estimation of risk-neutral densities, option prices, and option sensitivities. The iCOS method leverages the Fourier-based COS technique, proposed by Fang and Oosterlee (2008), by utilizing the option-implied cosine series coefficients. Notably, this procedure does not rely on any model assumptions about the underlying asset price dynamics, it is fully non-parametric, and it does not involve any numerical optimization. These features make it rather general and computationally appealing. Furthermore, we derive the asymptotic properties of the proposed non-parametric estimators and study their finite-sample behavior in Monte Carlo simulations. Our empirical analysis using S&P 500 index options and Amazon equity options illustrates the effectiveness of the iCOS method in extracting valuable information from option prices under different market conditions. Additionally, we apply our methodology to dissect and quantify observation and discretization errors in the VIX index.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | alexander2007model APACrefauthors Alexander, C. \ Nogueira, L M. APA… (1839) 2007 | 1.000 | 5 | 4 | 100% |
| 2 | bates2005hedging APACrefauthors Bates, D S. APACrefauthors \ (2005) 2005 | 1.000 | 5 | 4 | 100% |
| 3 | ait1998nonparametric APACrefauthors Aẗ-Sahalia, Y. \ Lo, A W. APACre… (1998) 1998 | 1.000 | 5 | 3 | 100% |
| 4 | blv APACrefauthors Boswijk, H P. , Laeven, R J. \ Vladimirov, E. APA… (2022) 2022 | 1.000 | 5 | 3 | 100% |
| 5 | carr2001optimal APACrefauthors Carr, P. \ Madan, D. APACrefauthors \ (2001) 2001 | 1.000 | 5 | 3 | 100% |
| 6 | todorov2019nonparametric APACrefauthors Todorov, V. APACrefauthors \ (2019) 2019 | 1.000 | 5 | 3 | 100% |
| 7 | fang2008novel APACrefauthors Fang, F. \ Oosterlee, C W. APACrefautho… (2008) 2008 | 0.920 | 9 | 5 | 78% |
| 8 | grith2012nonparametric APACrefauthors Grith, M. , Härdle, W K. \ Sch… (2012) 2012 | 0.843 | 3 | 3 | 100% |
| 9 | DPS2000 APACrefauthors Duffie, D. , Pan, J. \ Singleton, K. APACrefa… (2000) 2000 | 0.811 | 4 | 2 | 100% |
| 10 | CBOE APACrefauthors CBOE. APACrefauthors \ (2015) 2015 | 0.737 | 3 | 2 | 100% |
Showing the top 10 of 42 scored citations.