Empirical performance of interpolation techniques in risk-neutral density (RND) estimation

The objective of this study is to evaluate the empirical performance of interpolation techniques in risk-neutral density (RND) estimation. Firstly, the empirical performance is evaluated by using statistical analysis based on the implied mean and the implied variance of RND. Secondly, the interpolat...

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Main Authors:	Bahaludin, Hafizah, Abdullah, Mimi Hafizah
Format:	Conference or Workshop Item
Language:	English English English
Published:	Institute of Physics Publishing 2017
Subjects:	Q Science (General) QA Mathematics QC Physics
Online Access:	http://irep.iium.edu.my/57287/ http://irep.iium.edu.my/57287/ http://irep.iium.edu.my/57287/ http://irep.iium.edu.my/57287/1/57287_Empirical%20performance%20_complete.pdf http://irep.iium.edu.my/57287/2/57287_Empirical%20performance%20_SCOPUS.pdf http://irep.iium.edu.my/57287/13/57287%20Empirical%20performance%20of%20interpolation%20techniques%20WOS.pdf

id	iium-57287
recordtype	eprints
spelling	iium-572872019-09-30T04:25:01Z http://irep.iium.edu.my/57287/ Empirical performance of interpolation techniques in risk-neutral density (RND) estimation Bahaludin, Hafizah Abdullah, Mimi Hafizah Q Science (General) QA Mathematics QC Physics The objective of this study is to evaluate the empirical performance of interpolation techniques in risk-neutral density (RND) estimation. Firstly, the empirical performance is evaluated by using statistical analysis based on the implied mean and the implied variance of RND. Secondly, the interpolation performance is measured based on pricing error. We propose using the leave-one-out cross-validation (LOOCV) pricing error for interpolation selection purposes. The statistical analyses indicate that there are statistical differences between the interpolation techniques:second-order polynomial, fourth-order polynomial and smoothing spline. The results of LOOCV pricing error shows that interpolation by using fourth-order polynomial provides the best fitting to option prices in which it has the lowest value error. Institute of Physics Publishing 2017-04-03 Conference or Workshop Item NonPeerReviewed application/pdf en http://irep.iium.edu.my/57287/1/57287_Empirical%20performance%20_complete.pdf application/pdf en http://irep.iium.edu.my/57287/2/57287_Empirical%20performance%20_SCOPUS.pdf application/pdf en http://irep.iium.edu.my/57287/13/57287%20Empirical%20performance%20of%20interpolation%20techniques%20WOS.pdf Bahaludin, Hafizah and Abdullah, Mimi Hafizah (2017) Empirical performance of interpolation techniques in risk-neutral density (RND) estimation. In: 37th International Conference on Quantum Probability and Related Topics, QP 2016; Faculty of Science of the International Islamic University MalaysiaKuantan; Malaysia, 22-26 August 2016, International Islamic University Malaysia, Kuantan Pahang. http://iopscience.iop.org/article/10.1088/1742-6596/819/1/012026/pdf 10.1088/1742-6596/819/1/012026
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English English
topic	Q Science (General) QA Mathematics QC Physics
spellingShingle	Q Science (General) QA Mathematics QC Physics Bahaludin, Hafizah Abdullah, Mimi Hafizah Empirical performance of interpolation techniques in risk-neutral density (RND) estimation
description	The objective of this study is to evaluate the empirical performance of interpolation techniques in risk-neutral density (RND) estimation. Firstly, the empirical performance is evaluated by using statistical analysis based on the implied mean and the implied variance of RND. Secondly, the interpolation performance is measured based on pricing error. We propose using the leave-one-out cross-validation (LOOCV) pricing error for interpolation selection purposes. The statistical analyses indicate that there are statistical differences between the interpolation techniques:second-order polynomial, fourth-order polynomial and smoothing spline. The results of LOOCV pricing error shows that interpolation by using fourth-order polynomial provides the best fitting to option prices in which it has the lowest value error.
format	Conference or Workshop Item
author	Bahaludin, Hafizah Abdullah, Mimi Hafizah
author_facet	Bahaludin, Hafizah Abdullah, Mimi Hafizah
author_sort	Bahaludin, Hafizah
title	Empirical performance of interpolation techniques in risk-neutral density (RND) estimation
title_short	Empirical performance of interpolation techniques in risk-neutral density (RND) estimation
title_full	Empirical performance of interpolation techniques in risk-neutral density (RND) estimation
title_fullStr	Empirical performance of interpolation techniques in risk-neutral density (RND) estimation
title_full_unstemmed	Empirical performance of interpolation techniques in risk-neutral density (RND) estimation
title_sort	empirical performance of interpolation techniques in risk-neutral density (rnd) estimation
publisher	Institute of Physics Publishing
publishDate	2017
url	http://irep.iium.edu.my/57287/ http://irep.iium.edu.my/57287/ http://irep.iium.edu.my/57287/ http://irep.iium.edu.my/57287/1/57287_Empirical%20performance%20_complete.pdf http://irep.iium.edu.my/57287/2/57287_Empirical%20performance%20_SCOPUS.pdf http://irep.iium.edu.my/57287/13/57287%20Empirical%20performance%20of%20interpolation%20techniques%20WOS.pdf
first_indexed	2023-09-18T21:20:57Z
last_indexed	2023-09-18T21:20:57Z
_version_	1777411877959106560

Empirical performance of interpolation techniques in risk-neutral density (RND) estimation

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