Robust recovery of the risk neutral probability density from option prices
Robust recovery of the risk neutral probability density from option prices
Author(s): Gabriel TuriniciSubject(s): International relations/trade, EU-Approach / EU-Accession / EU-Development, Financial Markets
Published by: Editura Universităţii »Alexandru Ioan Cuza« din Iaşi
Keywords: mathematical finance; risk neutral probability density; calibration;
Summary/Abstract: We present in this paper a robust numerical procedure that allows extracting the risk neutral probability density data from a set of quoted European option prices. The procedure does not use any specific evolution model for the underlying; the probability density is the solution of a fitting problem to which we add a penalty term to ensure smoothness of the result. We give some examples from FOREX markets.
Journal: Analele Ştiinţifice ale Universităţii »Alexandru Ioan Cuza« din Iaşi. Ştiinţe economice
- Issue Year: 56/2009
- Issue No: 1
- Page Range: 197-201
- Page Count: 5
- Language: English
