The Density Prediction of Asset Prices with Liquidity Risk

摘要：

The purpose of this paper is to develop the liquidity-adjusted density of underlying asset prices from option prices. This paper investigates whether incorporating liquidity risk into an option pricing model is able to effectively increase the accuracy of option-derived density prediction for underlying asset prices. We compare the forecasting ability of the liquidity-adjusted density and the non-liquidity-adjusted density for one risk-neutral density and two real-world densities at five forecast horizons, the empirical results indicate that the liquidity-adjusted density is able to forecast future realizations of underlying asset prices more accurately than the non-liquidity-adjusted density that is constructed from the Black-Scholes model.

关键词： Density Prediction Liquidity Risk Risk-Neutral Density Real-World Density

作者: Shih-Ping Feng Mao-Wei Hung

作者单位: College of Management,National Taiwan University,Taipei,Taiwan College of Management,National Taiwan University,No.1,Section 4,Roosevelt Road,Taipei,Taiwan

会议类型: 国际会议

会议名称: 2008年中国金融国际年会

会议地点: 大连

会议语种:英文

页码: 1-36

在线出版日期: 2008-07-02（万方平台首次上网日期，不代表论文的发表时间）