Nonparametric estimation of equity return distribution implied by index options

Yongjin Kim

No 2010-E64, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: I estimate a return distribution of an equity index from equity index option prices. I evaluate nonparametrically the option price function and a state price density at each 1-year return. Based on a model for dynamics of consumption growth and dividend growth, a real-world probability density of the index return is measured, resulting in both a high expected return of the index and a low riskless rate. The nonparametric SPD and the real-world density show fatter negative tails than the lognormal models of the Black-Sholes models have, implying the existence of disasters in the return process.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://student-3k.tepper.cmu.edu/gsiadoc/wp/2010-E64.pdf
Our link check indicates that this URL is bad, the error code is: 401 Unauthorized

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cmu:gsiawp:1280589022

Ordering information: This working paper can be ordered from
https://student-3k.t ... /gsiadoc/GSIA_WP.asp

Access Statistics for this paper

More papers in GSIA Working Papers from Carnegie Mellon University, Tepper School of Business Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890.
Bibliographic data for series maintained by Steve Spear ().