Information on risk-neutral density (RND) is very valu- able in financial markets for a wide range of participants. This density can be used to mark-to-market exotic options that are not very liquid on the mar- ket, for anticipation of effects determined by new policy or possible extreme events such as crashes, and even for designing new trading strategies. There are many models that have been proposed in the past for estimating the risk-neutral density, the majority of them with their pros and cons. In this chapter we exemplify recovering the RND with the the generalized inverse gaussian distribution and with the mixed lognormal distribution.
Extracting risk-neutral density information from options market prices
LECCADITO, ARTURO;
2012-01-01
Abstract
Information on risk-neutral density (RND) is very valu- able in financial markets for a wide range of participants. This density can be used to mark-to-market exotic options that are not very liquid on the mar- ket, for anticipation of effects determined by new policy or possible extreme events such as crashes, and even for designing new trading strategies. There are many models that have been proposed in the past for estimating the risk-neutral density, the majority of them with their pros and cons. In this chapter we exemplify recovering the RND with the the generalized inverse gaussian distribution and with the mixed lognormal distribution.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
