Comparison of methods to estimate option implied risk-neutral densities

DOI10.1080/14697688.2011.606823MaRDI QIDQ5247238zbMATH OpenOpenAlexFDO

Authors Wan Ni Lai

Publication date 23 April 2015

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1080/14697688.2011.606823

zbMATH Keywords

Monte Carlo methodsfinancial optionsapplied mathematical financerisk neutral distributions

Mathematics Subject Classification ID

Nonparametric estimation (62G05) Learning and adaptive systems in artificial intelligence (68T05) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Spline approximation (41A15)

Recommendations

• Nonparametric estimation of risk-neutral densities
• Estimating option implied risk‐neutral densities using spline and hypergeometric functions
• Revealing the implied risk-neutral MGF from options: the wavelet method
• Estimation of risk-neutral density surfaces
• Determining and benchmarking risk neutral distributions implied from option prices

Cites work

• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• Analysis of Financial Time Series
• Asset Prices in an Exchange Economy
• Empirical assessment of an intertemporal option pricing model with latent variables.
• Nonparametric risk management and implied risk aversion
• The pricing of options and corporate liabilities

Cited in

(3)

• Testing the martingale restriction for option implied densities
• Determining and benchmarking risk neutral distributions implied from option prices
• Estimating option implied risk‐neutral densities using spline and hypergeometric functions

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