Spatial dependence in option observation errors
| Autor: | Rasmus T. Varneskov, Viktor Todorov, Torben G. Andersen, Nicola Fusari |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2021 |
| Předmět: |
Economics and Econometrics
Heteroscedasticity Smoothness (probability theory) 05 social sciences Monte Carlo method Nonparametric statistics 01 natural sciences 010104 statistics & probability 0502 economics and business Econometrics Portmanteau test 0101 mathematics Spatial dependence Null hypothesis Spatial analysis Social Sciences (miscellaneous) 050205 econometrics Mathematics |
| Zdroj: | Andersen, T G, Fusari, N, Todorov, V & Varneskov, R T 2021, ' Spatial dependence in option observation errors ', Econometric Theory, vol. 37, no. 2, pp. 205-247 . https://doi.org/10.1017/S0266466620000183 |
| DOI: | 10.1017/S0266466620000183 |
| Popis: | In this paper, we develop the first formal nonparametric test for whether the observation errors in option panels display spatial dependence. The panel consists of options with different strikes and tenors written on a given underlying asset. The asymptotic design is of the infill type—the mesh of the strike grid for the observed options shrinks asymptotically to zero, while the set of observation times and tenors for the option panel remains fixed. We propose a Portmanteau test for the null hypothesis of no spatial autocorrelation in the observation error. The test makes use of the smoothness of the true (unobserved) option price as a function of its strike and is robust to the presence of heteroskedasticity of unknown form in the observation error. A Monte Carlo study shows good finite-sample properties of the developed testing procedure and an empirical application to S&P 500 index option data reveals mild spatial dependence in the observation error, which has been declining in recent years. |
| Databáze: | OpenAIRE |
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