The development of a risk-neutral density estimation method

Bahaludin, Hafizah and Abdullah, Mimi Hafizah (2016) The development of a risk-neutral density estimation method. Journal of Engineering and Applied Sciences, 11 (7). pp. 1633-1638. ISSN 1816-949X

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Abstract

The Risk-Neutral Density (RND) function is the distribution implied by option prices. Broadly, the approaches to extract RND can be classified into four categories; an underlying asset is assumed to follow a stochastic distribution, parametric techniques, semi-parametric techniques and smoothing a volatility function. Smoothing volatility function is a common practice in extracting the RND function. Theoretically, it can be estimated by differentiating the call prices twice with respect to the strike price if the continuous strike prices are available. This study focuses on the development of the risk-neutral density estimation by using the smoothing implied volatility smile method.

Item Type:	Article (Journal)
Additional Information:	4482/54381
Uncontrolled Keywords:	Distribution; Extract; Options; Prices; Risk-neutral density
Subjects:	Q Science > QA Mathematics
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Science Kulliyyah of Science > Department of Computational and Theoretical Sciences
Depositing User:	Ms Mimi Hafizah Abdullah
Date Deposited:	16 Jan 2017 10:36
Last Modified:	23 Dec 2019 15:05
URI:	http://irep.iium.edu.my/id/eprint/54381

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