A simple and reliable way to compute option-based risk-neutral distributions

This paper describes a method for computing risk-neutral density functions based on the option-implied volatility smile. Its aim is to reduce complexity and provide cookbook-style guidance through the estimation process. The technique is robust and avoids violations of option no-arbitrage restrictions that can lead to negative probabilities and other impla usible results. I give examples for equities, foreign exchange, and long-term interest rates.

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Year of publication:	2014
Authors:	Malz, Allan M.
Publisher:	New York, NY : Federal Reserve Bank of New York
Subject:	option pricing \| risk-neutral distributions

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Series:	Staff Report ; 677
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	796860521 [GVK] hdl:10419/120801 [Handle]
Classification:	G01 - Financial Crises ; G13 - Contingent Pricing; Futures Pricing ; G17 - Financial Forecasting ; G18 - Government Policy and Regulation
Source:	EconStor

Persistent link: https://www.econbiz.de/10011340971