## Nonparametric Estimation of State-Price Densities Implicit In Financial Asset Prices (1997)

Venue: | JOURNAL OF FINANCE |

Citations: | 236 - 4 self |

### BibTeX

@ARTICLE{Aït-Sahalia97nonparametricestimation,

author = {Yacine Aït-Sahalia and Andrew W. Lo},

title = {Nonparametric Estimation of State-Price Densities Implicit In Financial Asset Prices},

journal = {JOURNAL OF FINANCE},

year = {1997},

volume = {53},

pages = {499--547}

}

### Years of Citing Articles

### OpenURL

### Abstract

Implicit in the prices of traded financial assets are Arrow-Debreu prices or, with continuous states, the state-price density (SPD). We construct a nonparametric estimator for the SPD implicit in option prices and derive its asymptotic sampling theory. This estimator provides an arbitrage-free method of pricing new, complex, or illiquid securities while capturing those features of the data that are most relevant from an asset-pricing perspective, e.g., negative skewness and excess kurtosis for asset returns, volatility "smiles" for option prices. We perform Monte Carlo experiments and extract the SPD from actual S&P 500 option prices.