A New Class of Bayesian Semiparametric Models with Applications to Option Pricing

41 Pages Posted: 8 Aug 2003 Last revised: 15 Jun 2011

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Paul Damien

University of Texas at Austin - McCombs School of Business

Stephen G. Walker

University of Bath - School of Mathematical Sciences

Date Written: April 13, 2011

Abstract

This paper develops a new family of Bayesian semiparametric models. A particular member of this family is used to model option prices with the aim of improving out-of-sample predictions. A detailed empirical analysis is made for European index call and put options to illustrate the ideas.

Keywords: Bayesian semiparametric model, option pricing

JEL Classification: G13, G12

Suggested Citation

Kacperczyk, Marcin T. and Damien, Paul and Walker, Stephen G., A New Class of Bayesian Semiparametric Models with Applications to Option Pricing (April 13, 2011). NYU Stern School of Business Working Paper; McCombs Research Paper Series No. IROM-08-05. Available at SSRN: https://ssrn.com/abstract=416583 or http://dx.doi.org/10.2139/ssrn.416583

Marcin T. Kacperczyk (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paul Damien

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Stephen G. Walker

University of Bath - School of Mathematical Sciences ( email )

Bath, BA2 7AY
United Kingdom

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