[1] Hu Xiaoping, Cui Hairong, Zhu Lihua, et al. Recovering implied risk-neutral probability density functionusing SVR [J]. Journal of Southeast University (English Edition), 2010, 26 (3): 489-493. [doi:10.3969/j.issn.1003-7985.2010.03.024]

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Recovering implied risk-neutral probability density functionusing SVR()

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Journal of Southeast University (English Edition)[ISSN:1003-7985/CN:32-1325/N]

Volumn:

26

Issue:

2010 3

Page:

489-493

Research Field:

Economy and Management

Publishing date:

2010-09-30

Info

Title:

Recovering implied risk-neutral probability density functionusing SVR

Author(s):

Hu Xiaoping¹;  Cui Hairong¹;  2;  Zhu Lihua¹;  Wang Xinyan¹

¹ School of Economics and Management, Southeast University, Nanjing 211189, China
² College of Engineering, Nanjing Agricultural University, Nanjing 210032, China

Keywords:

support vector regression;  option prices;  implied risk-neutral probability;  linear operator equation;  non-parametric method

PACS:

F830.9

DOI:

10.3969/j.issn.1003-7985.2010.03.024

Abstract:

Using support vector regression(SVR), a novel non-parametric method for recovering implied risk-neutral probability density function(IRNPDF)is investigated by solving linear operator equations. First, the SVR principle for function approximation is introduced, and an SVR method for solving linear operator equations with knowing some values of the right-hand function and without knowing its form is depicted. Then, the principle for solving the IRNPDF based on SVR and the method for constructing cross-kernel functions are proposed. Finally, an empirical example is given to verify the validity of the method. The results show that the proposed method can overcome the shortcomings of the traditional parametric methods, which have strict restrictions on the option exercise price; meanwhile, it requires less data than other non-parametric methods, and it is a promising method for the recover of IRNPDF.

References:

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Memo

Memo:

Biography: Hu Xiaoping(1971—), male, doctor, associate professor, hxpnj@163.com.
Foundation item: The National Natural Science Foundation of China(No.70671025).
Citation: Hu Xiaoping, Cui Hairong, Zhu Lihua, et al.Recovering implied risk-neutral probability density function using SVR[J].Journal of Southeast University(English Edition), 2010, 26(3):489-493.

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