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Title:A note on conditional arbitrage-free maximum entropy densities for simulative option pricing PDF Logo
Authors:Herrmann, Klaus
Issue Date:2009
Series/Report no.:Diskussionspapiere // Friedrich-Alexander-Universität Erlangen-Nürnberg, Lehrstuhl für Statistik und Ökonometrie 85/2009
Abstract:In this note we present a simple method to include the no-arbitrage condition into the derivation of conditional densities using the principle of maximum entropy. For the case of identically and independently distributed returns, we easily derive that the whole process estimated that way is arbitrage free. Such a process may be directly used for simulative derivation of option prices.
Subjects:Maximum Entropy density
No Arbitrage Condition
Document Type:Working Paper
Appears in Collections:Diskussionspapiere des Lehrstuhls für Statistik und Ökonometrie, FAU Erlangen-Nürnberg

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