Implied probability density functions (PDFs) estimated from cross-sections of observed option prices are gaining increasing attention amongst academics and practitioners. To date, however, little attention has been paid to the robustness of these estimates or to the confidence that users can...

Probability density functions (pdfs), implied by prices of traded options, are often used by the Bank to examine financial market expectations about future levels of different asset prices. This article examines how information about one aspect of such expectations - views on balances of risk -...