Research

P. Gagliardini, C. Gourieroux, and E. Renault: Efficient Derivative Pricing by Extended Method of Moments

May 1, 2007

This paper extends GMM and information theoretic estimation to settings where the conditional moment restrictions are either uniform (i.e. valid for any value of the conditioning variable), or local (i.e. valid for a particular value of the conditioning variable only). The parameter of interest can be either a structural parameter, or a local conditional moment. This is the framework for option pricing based on both historical data on the underlying asset and cross-sectional data on derivative assets,as a consequence of the rather small traded volumes on derivatives.