A selective overview of nonparametric methods in financial econometrics

This paper gives a brief overview of the nonparametric techniques that are useful for financial econometric problems. The problems include estimation and inference for instantaneous returns and volatility functions of time-homogeneous and time-dependent diffusion processes, and estimation of transition densities and state price densities. We first briefly describe the problems and then outline the main techniques and main results. Some useful probabilistic aspects of diffusion processes are also briefly summarized to facilitate our presentation and applications. Asset pricing, diffusion, drift, GLR tests, simulations, state price density, time-inhomogeneous model, transition density, volatility.