Beyond implied volatility: extracting information from option prices

Rama CONT
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Rama CONT: Swiss Federal Institute of Technology

Finance from EconWPA

Abstract: After a brief review of option pricing theory, we introduce various methods proposed for extracting the statistical information implicit in options prices. Among the methods discussed are: lognormal Edgeworth expansions, cumulant expansions, Hermite polynomial expansions, nonparametric kernel estimation of state price densities and maximum entropy methods. We discuss the advantages and drawbacks of each method, the interpretation of their results in economic terms, their theoretical consequences and their relevance for applications. The style is introductory and self-contained.

Keywords: Option; pricing (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 1998-04-08
Note: Type of Document - LaTex; prepared on UNIX Sparc TeX; to print on PostScript; pages: 26 ; figures: included. Lecture given at Eotvos university, Budapest in July 1997. Also available from:
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