Recovering Risk-Neutral Probability Density Functions Using Gaussian Mixture Distributions

摘要：

This paper presents a new approach to recover the implied risk-neutral probability density Junction (PDF) using Gaussian mixture distribution from options prices. Suppose the risk-neutral PDF is subjected to Gaussian mixture distribution, by minimizing the distance between the risk-neutral PDF and the physical PDF, the risk-neutral PDF is obtained. This method can avoid non-negative of the implied distribution. We test our approach using options prices data and prove the effectiveness of our methodology. The results show that the risk-neutral PDF has excess kurtosis, and a bimodal feature; a smaller peak of the left tail suggests that the approximation of lognormal distribution of underlying assets will underestimate the possibility of the loss.

关键词： risk-neutral density physical density gaussian mixture distributions option prices

作者: Cui Hairong Hu Xiaoping

作者单位: School of Economics and Management, Southeast University, Nanjing, China

会议类型: 国际会议

会议名称: 2010 International Conference on Management Science and Safety Engineering(2010管理科学与安全工程国际会议 MSSE 2010)

会议地点: 烟台

会议语种:英文

页码: 827-831

在线出版日期: 2010-08-06（万方平台首次上网日期，不代表论文的发表时间）