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Techniques for Extracting Risk-Neutral Probabilities from Option Prices

  • Martin Mandler
Chapter
  • 129 Downloads
Part of the Contributions to Economics book series (CE)

Abstract

In this chapter we discuss the recently developed techniques for extracting risk-neutral probabilities from option prices. We present the most important approaches in some detail so that the reader will be able to implement them with appropriate software. Various extensions and modifications are surveyed briefly. Before we consider the three most important types of techniques, sec­tion 5.1 shows a direct approach suggested by Neuhaus (1995) where the risk-neutral cumulative distribution function is approximated by a scaled first-order difference quotient of the call option-pricing function.

Keywords

Option Price Implied Volatility Strike Price Exercise Price Call Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2003

Authors and Affiliations

  • Martin Mandler
    • 1
  1. 1.Department of Economics and Business AdministrationUniversity of GießenGießenGermany

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