Robust recovery of the risk neutral probability density from option prices

Gabriel Turinici ()
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Gabriel Turinici: Université Paris Dauphine, Paris, France

Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), 2009, vol. 56, 197-201

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.

Keywords: mathematical finance; risk neutral probability density; calibration (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:aic:journl:y:2009:v:56:p:197-201

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