We present a method for the arbitrage-free interpolation of plain-vanilla option prices and implied volatilities, which is based on a system of integral equations that relates terminal density and option prices. Using a discretization of the terminal density, we write these integral equations as...

The business environment dynamics is governed by a high degree of uncertainty and risk; consequently, in a majority of cases investors face serious difficulties when making business decisions. Additionally, when detailed statistical information relating to industry is missing, any decisions may...