Recovering Probability Distributions from Option Prices

Jackwerth, Jens; Rubinstein, Mark

Recovering Probability Distributions from Option Prices

Dateien

Recovering_Probability_Distributions_from_Option_Prices.pdfGröße: 3.94 MBDownloads: 1637

Datum

1996

Autor:innen

Jackwerth, Jens

Rubinstein, Mark

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Wirtschaftswissenschaften

Publikationstyp

Zeitschriftenartikel

Publikationsstatus

Published

Erschienen in

Journal of Finance. 1996, 51(5), pp. 1611-1631. Available under: doi: 10.1111/j.1540-6261.1996.tb05219.x

Zusammenfassung

This article derives underlying asset risk-neutral probability distributions of European options on the S&P 500 index. Nonparametric methods are used to choose probabilities that minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices. Alternative optimization specifications produce approximately the same implied distributions. A new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distributions is proposed. Since the crash, the risk-neutral probability of a three (four) standard deviation decline in the index (about -36 percent (-46 percent) over a year) is about 10 (100) times more likely than under the assumption of lognormality.

Fachgebiet (DDC)

330 Wirtschaft

Zitieren

ISO 690

JACKWERTH, Jens, Mark RUBINSTEIN, 1996. Recovering Probability Distributions from Option Prices. In: Journal of Finance. 1996, 51(5), pp. 1611-1631. Available under: doi: 10.1111/j.1540-6261.1996.tb05219.x

BibTex

@article{Jackwerth1996Recov-12163,
  year={1996},
  doi={10.1111/j.1540-6261.1996.tb05219.x},
  title={Recovering Probability Distributions from Option Prices},
  number={5},
  volume={51},
  journal={Journal of Finance},
  pages={1611--1631},
  author={Jackwerth, Jens and Rubinstein, Mark}
}

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