Estimating option implied risk-neutral densities using spline and hypergeometric functions
Ruijun Bu and
Kaddour Hadri ()
Econometrics Journal, 2007, vol. 10, issue 2, 216-244
We examine the ability of two recent methods -- the smoothed implied volatility smile method (SML) and the density functionals based on confluent hypergeometric functions (DFCH) -- for estimating implied risk-neutral densities (RNDs) from European-style options. Two complementary Monte Carlo experiments are conducted and the performance of the two RND estimators is evaluated by the root mean integrated squared error (RMISE) criterion. Results from both experiments show that the DFCH method outperforms the SML method for the overall quality of the estimated RNDs concerning both accuracy and stability. An application of the two methods to the OTC currency options market is also presented. Copyright Royal Economic Society 2007
References: Add references at CitEc
Citations: View citations in EconPapers (20) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1368-423X.2007.00206.x link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ect:emjrnl:v:10:y:2007:i:2:p:216-244
Ordering information: This journal article can be ordered from
Access Statistics for this article
Econometrics Journal is currently edited by Richard J. Smith, Oliver Linton, Pierre Perron, Jaap Abbring and Marius Ooms
More articles in Econometrics Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().