Nonparametric Option Pricing with Generalized Entropic Estimators

Abstract

Section 1 of this online appendix shows that in a Black-Scholes economy there is an optimal generalized entropic estimator correctly pricing any option. This estimator is determined by the parameters governing risk premium in the underlying asset process. Section 2 contains additional empirical results on the performance of generalized entropic estimators for pricing S&P 500 options and U.S. individual equity options, complementing the analysis in the main paper.