Simulation-Based Estimation of Contingent-Claims Prices

@inproceedings{Phillips2006SimulationBasedEO,
  title={Simulation-Based Estimation of Contingent-Claims Prices},
  author={Peter C. B. Phillips},
  year={2006}
}
A new methodology is proposed to estimate theortical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-based method that improves the finite sample performance of the ML estimator while maintaining its good… CONTINUE READING

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