Abstract
In this chapter we discuss the recently developed techniques for extracting risk-neutral probabilities from option prices. We present the most important approaches in some detail so that the reader will be able to implement them with appropriate software. Various extensions and modifications are surveyed briefly. Before we consider the three most important types of techniques, section 5.1 shows a direct approach suggested by Neuhaus (1995) where the risk-neutral cumulative distribution function is approximated by a scaled first-order difference quotient of the call option-pricing function.
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© 2003 Springer-Verlag Berlin Heidelberg
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Mandler, M. (2003). Techniques for Extracting Risk-Neutral Probabilities from Option Prices. In: Market Expectations and Option Prices. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57428-3_5
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DOI: https://doi.org/10.1007/978-3-642-57428-3_5
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-7908-0049-4
Online ISBN: 978-3-642-57428-3
eBook Packages: Springer Book Archive