Recovering Probability Distributions from Option Prices
Title | Recovering Probability Distributions from Option Prices PDF eBook |
Author | Mark Rubinstein |
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Release | 1998 |
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This paper derives underlying asset risk-neutral probability distributions of European options on the Samp;P 500 index. Nonparametric methods are used to choose probabilities which minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices. Alternative optimization specifications produce approximately the same implied distributions. A new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distribution is proposed. Since the crash, the risk-neutral probability of a three (four) standard deviation decline in the index (about-36% (-46%) over a year) is about 10 (100) times more likely than under the assumption of lognormality.
Recovering Probabilities and Risk Aversion from Option Prices and Realized Returns
Title | Recovering Probabilities and Risk Aversion from Option Prices and Realized Returns PDF eBook |
Author | Mark Rubinstein |
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Pages | |
Release | 2008 |
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Using Illiquid Option Prices to Recover Probability Distributions
Title | Using Illiquid Option Prices to Recover Probability Distributions PDF eBook |
Author | Fernando Gonzáles Miranda |
Publisher | |
Pages | 24 |
Release | 1998 |
Genre | Options (Finance) |
ISBN | 9789515555779 |
Recovering Probabilistic Information from Options Prices and the Underlying
Title | Recovering Probabilistic Information from Options Prices and the Underlying PDF eBook |
Author | Bruce Mizrach |
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Pages | 29 |
Release | 2008 |
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This paper examines a variety of methods for extracting implied probability distributions from option prices and the underlying. The paper first explores non-parametric procedures for reconstructing densities directly from options market data. I then consider local volatility functions, both through implied volatility trees and volatility interpolation. I then turn to alternative specifications of the stochastic process for the underlying. I estimate a mixture of log normals model, apply it to exchange rate data, and illustrate how to conduct forecast comparisons. I finally turn to the estimation of jump risk by extracting bipower variation.
Beyond Implied Volatility
Title | Beyond Implied Volatility PDF eBook |
Author | David C. Shimko |
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Pages | 29 |
Release | 1991 |
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Option-Implied Risk-Neutral Distributions and Risk Aversion
Title | Option-Implied Risk-Neutral Distributions and Risk Aversion PDF eBook |
Author | Jens Carsten Jackwerth |
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Release | 2008 |
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Extracting Risk-neutral Probability Distributions from Option Prices Using Trading Volume as a Filter
Title | Extracting Risk-neutral Probability Distributions from Option Prices Using Trading Volume as a Filter PDF eBook |
Author | Dominique Y. Dupont |
Publisher | |
Pages | 32 |
Release | 2001 |
Genre | Asset allocation |
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