Journal of Applied Mathematics and Decision Sciences
Volume 6 (2002), Issue 1, Pages 1-22

Nonparametric statistical methods and the pricing of derivative securities

Rüdiger Kiesel

Department of Statistics, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK

Copyright © 2002 Rüdiger Kiesel. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


In this review paper we summarise several nonparametric methods recently applied to the pricing of financial options. After a short introduction to martingale-based option pricing theory, we focus on two possible fields of application for nonparametric methods: the estimation of risk-neutral probabilities and the estimation of the dynamics of the underlying instruments in order to construct an internally consistent model.