NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Nicola Fusari

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Working Papers

May 2012Parametric Inference and Dynamic State Recovery from Option Panels
with Torben G. Andersen, Viktor Todorov: w18046
We develop a new parametric estimation procedure for option panels observed with error which relies on asymptotic approximations assuming an ever increasing set of observed option prices in the moneyness- maturity (cross-sectional) dimension, but with a fixed time span. We develop consistent estimators of the parameter vector and the dynamic realization of the state vector that governs the option price dynamics. The estimators converge stably to a mixed-Gaussian law and we develop feasible estimators for the limiting variance. We provide semiparametric tests for the option price dynamics based on the distance between the spot volatility extracted from the options and the one obtained nonparametrically from high-frequency data on the underlying asset. We further construct new formal tests o...

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