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 determining the risk neutral distributions. We we shall differentiate between …

This paper uses the method developed by Bollerslev and Todorov (2011b) to estimate risk premia for extreme events for … method to German data yields very similar results to the ones shown for the US data. The risk premia for rare events … constitute a considerable part of the total equity and variance risk premia for both markets. When using the results to build an …