Options and the Gamma Knife

Ian Martin

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: I survey work of Steve Ross (1976) and of Douglas Breeden and Robert Litzenberger (1978) that first showed how to use options to synthesize more complex securities. Their results made it possible to infer the risk-neutral measure associated with a traded asset, and underpinned the development of the VIX index. The other main result of Ross (1976), which shows how to infer joint risk-neutral distributions from option prices, has been much less influential. I explain why, and propose an alternative approach to the problem. This paper is dedicated to Steve Ross, and was written for a special issue of the Journal of Portfolio Management in memory of him.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2018-07-02
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Citations: View citations in EconPapers (2)

Published in Journal of Portfolio Management, 2, July, 2018, 44(6), pp. 47-55. ISSN: 0095-4918

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http://eprints.lse.ac.uk/88077/ Open access version. (application/pdf)

Related works:
Working Paper: Options and the Gamma Knife (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:88077

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