Recovering probabilistic information from options prices and the underlying

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2007-02

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading ; Foreign Exchange
• Subject: Options ; implied probability densities ; volatility smile ; jump risk ; bipower variation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mizrach, Bruce
• Event: Veröffentlichung
• (who): Rutgers University, Department of Economics
• (where): New Brunswick, NJ
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/31297
• Last update: 10.03.2025, 11:44 AM CET