Estimation of the Asset Price Distribution Using the Maximum Entropy Principle

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ISBN 13 :
Total Pages : 18 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Estimation of the Asset Price Distribution Using the Maximum Entropy Principle by : Geon Ho Choe

Download or read book Estimation of the Asset Price Distribution Using the Maximum Entropy Principle written by Geon Ho Choe and published by . This book was released on 2008 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Option price contains information on the distribution of the underlying asset. Under insufficient condition we employ the maximum entropy principle to estimate the probability density of the asset price. The problem is equivalent to finding the Lagrange multipliers of a linear functional defined by entropy and payoff functions. Buchen and Kelly proved that the maximum entropy distribution recovered from observed option prices is quite similar with the original asset distribution. In this article we apply a similar method to recover the probability density function of an asset from given option prices for binary options and European options.

The Maximum Entropy Distribution of an Asset Inferred from Option Prices

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Maximum Entropy Distribution of an Asset Inferred from Option Prices by : Peter W. Buchen

Download or read book The Maximum Entropy Distribution of an Asset Inferred from Option Prices written by Peter W. Buchen and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper describes the application of the Principle of Maximum Entropy to the estimation of the distribution of an underlying asset from a set of option prices. The resulting distribution is least committal with respect to unknown or missing information and is hence the least prejudiced. The maximum entropy distribution is the only information about the asset that can be inferred from the price data alone. An extension to the Principle of Minimum Cross-Entropy allows the inclusion of prior knowledge of the asset distribution. We show that the maximum entropy distribution is able to accurately fit a known density, given simulated option prices at different strikes.

Implementing the Principle of Maximum Entropy in Option Pricing

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ISBN 13 :
Total Pages : 258 pages
Book Rating : 4.:/5 (445 download)

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Book Synopsis Implementing the Principle of Maximum Entropy in Option Pricing by : Weiyu Guo

Download or read book Implementing the Principle of Maximum Entropy in Option Pricing written by Weiyu Guo and published by . This book was released on 1999 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Black-Scholes option pricing model has been the foundation of option pricing analysis. Yet as well known as the model itself, its empirical deficiencies are also well documented. Option prices generated by the Black-Scholes formula are often found to systematically differ from observed prices. The patterns of mispricing are generally believed to result from violations of one or more assumptions underlying the Black-Scholes option pricing model, such as the natural logarithm of the underlying stock price following a normal distribution with a variance that increases exactly linearly with time. This dissertation concerns an evaluation of the Principle of Maximum Entropy as a method for recovering a probability density function from stock index option prices. Theoretically, the resulting probability density is "the least prejudiced estimate since it is maximally noncommittal with respect to missing or unknown information." Empirically, this dissertation demonstrates that entropy valuation gives much stronger performance than does the Black-Scholes model in pricing stock index options on the S & P 500 and on the Dow Jones Industrial Average.

Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy

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ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.:/5 (634 download)

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Book Synopsis Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy by : Jonathan Borwein

Download or read book Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy written by Jonathan Borwein and published by . This book was released on 2002 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Essays on Maximum Entropy Principle with Applications to Econometrics and Finance

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Publisher : ProQuest
ISBN 13 : 9780549344216
Total Pages : 179 pages
Book Rating : 4.3/5 (442 download)

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Book Synopsis Essays on Maximum Entropy Principle with Applications to Econometrics and Finance by : Sung Yong Park

Download or read book Essays on Maximum Entropy Principle with Applications to Econometrics and Finance written by Sung Yong Park and published by ProQuest. This book was released on 2007 with total page 179 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies density estimation and portfolio selection problems using the maximum entropy (ME) principle. Since an entropy measure turns out to be a distance measure between two distributions, it can be used to estimate unknown density function. Entropy can be also interpreted as a measure of the degree of diversification and thus provides an useful way to construct optimal portfolio weights. In this dissertation three subjects are studied extensively. First, we propose ME autoregressive conditional heteroskedasticity model with demonstrating how we can extract informative functional from the data in the form of moment function. Second, the portfolio selection problem is considered using ME principle. We propose to use cross entropy measure as the objective function (to minimize) with side conditions coming from the mean and variance-covariance matrix of the resampled asset returns. Finally, using ME principle, we provided characterization of some well-known income distributions and flexible parametric income distributions which satisfy certain stylized facts of personal income data. Empirical results showed that maximum entropy principle is quite useful for analyzing economic and financial data.

Dictionary of Scientific Principles

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Publisher : John Wiley & Sons
ISBN 13 : 111858239X
Total Pages : 734 pages
Book Rating : 4.1/5 (185 download)

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Book Synopsis Dictionary of Scientific Principles by : Stephen Marvin

Download or read book Dictionary of Scientific Principles written by Stephen Marvin and published by John Wiley & Sons. This book was released on 2012-11-27 with total page 734 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dictionary of Scientific Principles presents a unique and timeless collection of (almost) all known rules or laws commonly called principles, identified throughout the history of scientific development, their definition, and use. Exploring a broad range of disciplines, the book first lists more than 2,000 principles organized in a standard alphabetical order, then provides a list of subject headings for which related principles are identified. A staple addition to every library, the dictionary will also be of interest to scientists and general readers.

Computer Aided Systems Theory – EUROCAST 2017

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Publisher : Springer
ISBN 13 : 3319747274
Total Pages : 489 pages
Book Rating : 4.3/5 (197 download)

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Book Synopsis Computer Aided Systems Theory – EUROCAST 2017 by : Roberto Moreno-Díaz

Download or read book Computer Aided Systems Theory – EUROCAST 2017 written by Roberto Moreno-Díaz and published by Springer. This book was released on 2018-01-25 with total page 489 pages. Available in PDF, EPUB and Kindle. Book excerpt: The two-volume set LNCS 10671 and 10672 constitutes the thoroughly refereed proceedings of the 16th International Conference on Computer Aided Systems Theory, EUROCAST 2017, held in Las Palmas de Gran Canaria, Spain, in February 2017. The 117 full papers presented were carefully reviewed and selected from 160 submissions. The papers are organized in topical sections on: pioneers and landmarks in the development of information and communication technologies; systems theory, socio-economic systems and applications; theory and applications of metaheuristic algorithms; stochastic models and applications to natural, social and technical systems; model-based system design, verification and simulation; applications of signal processing technology; algebraic and combinatorial methods in signal and pattern analysis; computer vision, deep learning and applications; computer and systems based methods and electronics technologies in medicine; intelligent transportation systems and smart mobility.

A New Method of Employing the Principle of Maximum Entropy to Retrieve the Risk Neutral Density

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ISBN 13 :
Total Pages : 30 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis A New Method of Employing the Principle of Maximum Entropy to Retrieve the Risk Neutral Density by : Leonidas Rompolis

Download or read book A New Method of Employing the Principle of Maximum Entropy to Retrieve the Risk Neutral Density written by Leonidas Rompolis and published by . This book was released on 2017 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper suggests a new method of implementing the principle of maximum entropy to retrieve the risk neutral density of future stock, or any other asset, returns from European call and put prices. Instead of options prices used by previous studies the method maximizes the entropy measure subject to values of the risk neutral moments. These moments can be retrieved from market option prices in a first step, at each point of time. Compared to other existing methods of retrieving the risk neutral density based on the principle of maximum entropy, the benefits of the method that the paper suggests is the use of all the available information provided by the market more sufficiently. To evaluate the performance of the suggested method, the paper compares the new method proposed to other risk neutral density estimation techniques based on a number of simulation and empirical exercises.

Maximum-entropy Models in Science and Engineering

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Publisher : John Wiley & Sons
ISBN 13 : 9788122402162
Total Pages : 660 pages
Book Rating : 4.4/5 (21 download)

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Book Synopsis Maximum-entropy Models in Science and Engineering by : Jagat Narain Kapur

Download or read book Maximum-entropy Models in Science and Engineering written by Jagat Narain Kapur and published by John Wiley & Sons. This book was released on 1989 with total page 660 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Is The First Comprehensive Book About Maximum Entropy Principle And Its Applications To A Diversity Of Fields Like Statistical Mechanics, Thermo-Dynamics, Business, Economics, Insurance, Finance, Contingency Tables, Characterisation Of Probability Distributions (Univariate As Well As Multivariate, Discrete As Well As Continuous), Statistical Inference, Non-Linear Spectral Analysis Of Time Series, Pattern Recognition, Marketing And Elections, Operations Research And Reliability Theory, Image Processing, Computerised Tomography, Biology And Medicine. There Are Over 600 Specially Constructed Exercises And Extensive Historical And Bibliographical Notes At The End Of Each Chapter.The Book Should Be Of Interest To All Applied Mathematicians, Physicists, Statisticians, Economists, Engineers Of All Types, Business Scientists, Life Scientists, Medical Scientists, Radiologists And Operations Researchers Who Are Interested In Applying The Powerful Methodology Based On Maximum Entropy Principle In Their Respective Fields.

Consistent Estimation of State-Price Distribution Functions from Noisy Price Data

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ISBN 13 :
Total Pages : 16 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Consistent Estimation of State-Price Distribution Functions from Noisy Price Data by : Vladislav Kargin

Download or read book Consistent Estimation of State-Price Distribution Functions from Noisy Price Data written by Vladislav Kargin and published by . This book was released on 2004 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: For the accurate pricing of contingent securities, it is often not necessary to have a consistent estimate of the state-price density: It is enough to have a good estimate of the state-price distribution function. It is shown in this paper that the inverse problem of finding the state-price distribution function from the prices of put options is well-posed (as opposed to the problem of finding the state-price density, which is ill-posed), and that the constrained least squares method provides a consistent estimate of the state-price distribution function. It is also suggested that small sample properties of the least squares estimator can be improved by a modification that takes into account the deviation from a prior state-price distribution. The modified method is called the relaxed maximum entropy by analogy with the maximum entropy method by Buchen and Kelly. By generalizing a Csiszar theorem about the existence of relative entropy projections, it is proved that the relaxed maximum entropy estimator exists. The performance of the estimation methods is evaluated by Monte-Carlo simulations. Both methods are found to be fast and accurate, with the constrained least squares having advantage in speed, and the relaxed maximum entropy in accuracy of pricing.

Digital Services and Information Intelligence

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Publisher : Springer
ISBN 13 : 3662455269
Total Pages : 372 pages
Book Rating : 4.6/5 (624 download)

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Book Synopsis Digital Services and Information Intelligence by : Hongxiu Li

Download or read book Digital Services and Information Intelligence written by Hongxiu Li and published by Springer. This book was released on 2014-11-22 with total page 372 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book constitutes the refereed conference proceedings of the 13th IFIP WG 6.11 Conference on e-Business, e-Services and e-Society, I3E 2014, held in Sanya, China, in November 2014. The 32 revised full papers presented were carefully reviewed and selected from 42 submissions. They are organized in the following topical sections: digital services, digital society, and digital business.

The Option-iPoD

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Publisher : International Monetary Fund
ISBN 13 : 1451870523
Total Pages : 31 pages
Book Rating : 4.4/5 (518 download)

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Book Synopsis The Option-iPoD by : Christian Capuano

Download or read book The Option-iPoD written by Christian Capuano and published by International Monetary Fund. This book was released on 2008-08-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma and vega). We show how to extend the framework by using information from the price of a zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment.

Dissertation Abstracts International

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ISBN 13 :
Total Pages : 544 pages
Book Rating : 4.F/5 ( download)

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Book Synopsis Dissertation Abstracts International by :

Download or read book Dissertation Abstracts International written by and published by . This book was released on 1998 with total page 544 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Engineering Risk and Finance

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Publisher : Springer Science & Business Media
ISBN 13 : 1461462347
Total Pages : 518 pages
Book Rating : 4.4/5 (614 download)

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Book Synopsis Engineering Risk and Finance by : Charles S. Tapiero

Download or read book Engineering Risk and Finance written by Charles S. Tapiero and published by Springer Science & Business Media. This book was released on 2013-02-13 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk models are models of uncertainty, engineered for some purposes. They are “educated guesses and hypotheses” assessed and valued in terms of well-defined future states and their consequences. They are engineered to predict, to manage countable and accountable futures and to provide a frame of reference within which we may believe that “uncertainty is tamed”. Quantitative-statistical tools are used to reconcile our information, experience and other knowledge with hypotheses that both serve as the foundation of risk models and also value and price risk. Risk models are therefore common to most professions, each with its own methods and techniques based on their needs, experience and a wisdom accrued over long periods of time. This book provides a broad and interdisciplinary foundation to engineering risks and to their financial valuation and pricing. Risk models applied in industry and business, heath care, safety, the environment and regulation are used to highlight their variety while financial valuation techniques are used to assess their financial consequences. This book is technically accessible to all readers and students with a basic background in probability and statistics (with 3 chapters devoted to introduce their elements). Principles of risk measurement, valuation and financial pricing as well as the economics of uncertainty are outlined in 5 chapters with numerous examples and applications. New results, extending classical models such as the CCAPM are presented providing insights to assess the risks and their price in an interconnected, dependent and strategic economic environment. In an environment departing from the fundamental assumptions we make regarding financial markets, the book provides a strategic/game-like approach to assess the risk and the opportunities that such an environment implies. To control these risks, a strategic-control approach is developed that recognizes that many risks resulting by “what we do” as well as “what others do”. In particular we address the strategic and statistical control of compliance in large financial institutions confronted increasingly with a complex and far more extensive regulation.

Monte Carlo Simulation and Finance

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Publisher : John Wiley & Sons
ISBN 13 : 1118160940
Total Pages : 308 pages
Book Rating : 4.1/5 (181 download)

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Book Synopsis Monte Carlo Simulation and Finance by : Don L. McLeish

Download or read book Monte Carlo Simulation and Finance written by Don L. McLeish and published by John Wiley & Sons. This book was released on 2011-09-13 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: Monte Carlo methods have been used for decades in physics, engineering, statistics, and other fields. Monte Carlo Simulation and Finance explains the nuts and bolts of this essential technique used to value derivatives and other securities. Author and educator Don McLeish examines this fundamental process, and discusses important issues, including specialized problems in finance that Monte Carlo and Quasi-Monte Carlo methods can help solve and the different ways Monte Carlo methods can be improved upon. This state-of-the-art book on Monte Carlo simulation methods is ideal for finance professionals and students. Order your copy today.

Volatility and Time Series Econometrics

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Publisher : Oxford University Press
ISBN 13 : 0199549494
Total Pages : 432 pages
Book Rating : 4.1/5 (995 download)

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Book Synopsis Volatility and Time Series Econometrics by : Mark Watson

Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics

Maximum Entropy Estimation of a Restricted Hildreth-Houck Random-coefficents Model

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Publisher :
ISBN 13 :
Total Pages : 74 pages
Book Rating : 4.:/5 (666 download)

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Book Synopsis Maximum Entropy Estimation of a Restricted Hildreth-Houck Random-coefficents Model by : Ludo Peeters

Download or read book Maximum Entropy Estimation of a Restricted Hildreth-Houck Random-coefficents Model written by Ludo Peeters and published by . This book was released on 2003 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: