Derivation of discrete analog of Breeden–Litzenberger relation for risk-neutral density

Abhimanyu Kumar ()
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Abhimanyu Kumar: Electrical and Instrumentation Engineering Department, Thapar Institute of Engineering and Technology, Patiala 147004, Punjab, India

International Journal of Financial Engineering (IJFE), 2025, vol. 12, issue 01, 1-8

Abstract: This short paper derives a formula for the risk-neutral density function at discrete points over the strike range using Abel’s summation formula in terms of the arbitrage-free call price function in a European option contingent. The estimate of risk-neutral density is crucial from a risk management perspective and other crucial assessments.

Keywords: Option pricing; risk-neutral density; Abel’s summation formula (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2424786323500615

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