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https://hdl.handle.net/10316/5476
Title: | Recovering risk-neutral probability density functions from options prices using cubic splines and ensuring nonnegativity | Authors: | Monteiro, Ana Margarida Tütüncü, Reha H. Vicente, Luís N. |
Keywords: | Option pricing; Risk-neutral density estimation; Cubic splines; Quadratic programming; Semidefinite programming | Issue Date: | 2008 | Citation: | European Journal of Operational Research. 187:2 (2008) 525-542 | Abstract: | We present a new approach to estimate the risk-neutral probability density function (pdf) of the future prices of an underlying asset from the prices of options written on the asset. The estimation is carried out in the space of cubic spline functions, yielding appropriate smoothness. The resulting optimization problem, used to invert the data and determine the corresponding density function, is a convex quadratic or semidefinite programming problem, depending on the formulation. Both of these problems can be efficiently solved by numerical optimization software. | URI: | https://hdl.handle.net/10316/5476 | Rights: | openAccess |
Appears in Collections: | FEUC- Artigos em Revistas Internacionais |
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