Abstract
We present a novel synthesis of MaxEnt and option pricing theory that yields a practical computational method for numerically reconstructing the probability density function implicit in option prices from an incomplete and noisy set of option prices. We illustrate the potential of this approach by calculating the implied probability density function from observed S&P 500 index options.
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© 1996 Springer Science+Business Media Dordrecht
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Hawkins, R.J., Rubinstein, M., Daniell, G.J. (1996). Reconstruction of the Probability Density Function Implicit in Option Prices from Incomplete and Noisy Data. In: Hanson, K.M., Silver, R.N. (eds) Maximum Entropy and Bayesian Methods. Fundamental Theories of Physics, vol 79. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-5430-7_1
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DOI: https://doi.org/10.1007/978-94-011-5430-7_1
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