A Bayesian Beta Markov Random Field calibration of the term structure of implied risk neutral densities

We build on the derivative pricing calibration literature, and propose a more general calibration model for implied risk neutral densities. Our model allows for the joint calibration of a set of densities at different maturities and dates through a Bayesian dynamic Beta Markov Random Field. Our approach allows for possible time dependence between densities with the same maturity, and for dependence across maturities at the same point in time. This approach to the risk neutral density calibration problem encompasses model flexibility, parameter parsimony, and, more importantly, information pooling across densities. This proposed methodology can be naturally extended to other areas where multidimensional calibration is needed.

• Autores: Casarin, Roberto; Leisen, Fabrizio; Molina, Germán; ter Horst, Enrique
• Tipo de recurso: Article of investigation
• Fecha de publicación: 2015
• Institución: Colegio de Estudios Superiores de Administración
• Repositorio: Repositorio CESA
• Idioma: eng
• OAI Identifier: oai:repository.cesa.edu.co:10726/5120
• Acceso en línea: http://hdl.handle.net/10726/5120; https://projecteuclid.org/journals/bayesian-analysis/volume-10/issue-4/A-Bayesian-Beta-Markov-Random-Field-Calibration-of-the-Term/10.1214/15-BA960SI.full
• Palabra clave: Bayesian inference; Beta Markov Random Fields; Density calibration; Distortion function; Exchange Metropolis Hastings; Risk neutral measure
• Rights: openAccess
• License: Abierto (Texto Completo)