A Selective Review of Nonparametric Methods in Finance

                              ZONGWU CAI
                         Department of Mathematics
                         University of North Carolina
                         Charlotte, NC 28223
                         USA
                         E-mail: zcai@uncc.edu

   
   In this talk, I will survey and assess some new developments of 
   nonparametric methods in finance during the last decade, which has seen
   significant progress in econometric theory, computational and estimation 
   methods to test and implement financial models. In particular, I will 
   discuss how some nonparametric methods have been successfully applied 
   to estimating and testing nonparametrically the drift and diffusion in 
   the Black-Scholes models. Also, I will discuss some new developments in 
   the nonparametric jump-diffusion models, which can better accommodate 
   several empirical features of return data. Finally, I will discuss the 
   capital asset pricing models and discuss two main methods: beta-method 
   and stochastic discount factor method. Of course, I will outline the 
   future research topics.