Nonparametric Estimation of State-Price Densities Implicit in Interest Rate Cap Prices

• 成果类型: Article
• 署名作者: Li, Haitao; Zhao, Feng
• 署名单位: University of Michigan System; University of Michigan; University of Texas System; University of Texas Dallas
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhp025
• 发表日期: 2009
• 页码: 4335
• 关键词: UNSPANNED STOCHASTIC VOLATILITY; models; bootstrap

摘要

Based on a multivariate extension of the constrained locally polynomial estimator of Ait-Sahalia and Duarte (2003), we provide one of the first nonparametric estimates of probability densities of LIBOR rates under forward martingale measures and state-price densities (SPDs) implicit in interest rate cap prices. The forward densities and SPDs depend significantly on the slope and volatility of LIBOR rates, and mortgage markets activities have strong impacts on the shape of the forward densities. The SPDs exhibit a pronounced U-shape as a function of future LIBOR rates, suggesting that the state prices are high at both extremely low and high interest rates, which tend to be associated with recessions and periods of high inflation, respectively. Our results provide nonparametric evidence of unspanned stochastic volatility and suggest that the unspanned factors could be partly driven by activities in the mortgage markets. (JEL G12, G13)