EconPapers    
Economics at your fingertips  
 

Implied Risk Neutral Densities From Option Prices: Hypergeometric, Spline, Lognormal, and Edgeworth Functions

André Santos and João Guerra

Journal of Futures Markets, 2015, vol. 35, issue 7, 655-678

Abstract: This work examines the performance of four different methods to estimate the “true” Risk‐Neutral Density functions (RNDs) using European options. These methods are the Mixture of Lognormal distributions (MLN), the Smoothed Implied Volatility Smile (SML), the Density Functional Based on the Confluent Hypergeometric function (DFCH), and the Edgeworth expansions (EE). The “true” RND is unknown, so it was generated using the stochastic Heston model and considering parameters that reflect the characteristics of the options market for the US dollar and Brazilian real exchange rate (USD/BRL). We find that the DFCH and MLN have the best performance in capturing the “true” RNDs. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:655–678, 2015

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/

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:wly:jfutmk:v:35:y:2015:i:7:p:655-678

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2025-03-20
Handle: RePEc:wly:jfutmk:v:35:y:2015:i:7:p:655-678