Building Risk-Neutral Density (RND) from options data is one useful form of extracting market expectations about a financial variable. For a sample of IDI (Brazilian Interbank Deposit Rate Index) options from 1998 to 2009, this paper estimates the option-implied Risk-Neutral Densities for the...

Since its introduction in 2003, volatility indices such as the VIX based on the model-free implied volatility (MFIV) have become the industry standard for assessing equity market volatility. MFIV suffers from estimation bias which typically underestimates volatility during extreme market...

This chapter deals with the estimation of risk neutral distributions for pricing index options resulting from the hypothesis of the risk neutral valuation principle. After justifying this hypothesis, we shall focus on parametric estimation methods for the risk neutral density functions...

In the aftermath of the 2008 financial crisis, the need to consider more realistic risk models for derivative products has received renewed attention. We introduce a dynamic model for the pricing of European-style options with various attractive features such as a mixture of heavy-tails and...

In this paper, we develop a new nonparametric approach for estimating the risk-neutral density of asset price and reformulate its estimation into a double-constrained optimization problem. We implement our approach in R and evaluate it using the S&P 500 market option prices from 1996 to 2015. A...

The Local Stochastic Volatility model is the main model used to take into account the correct pricing and hedging with the volatility dynamic.We introduce a new methodology that combines Singular perturbation analysis and exotic greek computation. We obtain asymptotic formulae for the LSV impact...

An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...

The main goal of this paper is to better understand the behavior of credit spreads in the past and the potential risk of unexpected future credit spread changes. One important consideration to note regarding credit spreads is the fact that bond spreads contain a liquidity premium, which...

We analyze in detail calibration and pricing performed within the framework of local stochastic volatility LSV models, which have become the industry market standard for FX and equity markets. We present the main arguments for the need of having such models, and address the question whether...

Measuring the performance of stock portfolios that include options is challenging due to options' nonlinearity in the underlying, their exposure to volatility risk, and their time decay. Our contribution to the literature is twofold: First, we provide a theoretically rigorous derivation of the...