Craig, Ben R. (contributor); Keller, Joachim G. (contributor) - 2003 - [Elektronische Ressource]
behind computing the risk
neutral densities from European options. To see this, the European option price,
c
t
(K,X,T −t … expressed as
c
t
(K,X,T −t)=e
−ρ(T−t)
∞
Z
K
(X
T
−K)π
T
(X)dX (1)
where ρ is the discount rate, (here assumed constant) and π
T …
(X) is the risk neutral
density over the state space of X at the expiration date T. As pointed out by
1
Breeden and …