Estimating and Interpreting Probability Density Functions

@inproceedings{Chang1999EstimatingAI,
  title={Estimating and Interpreting Probability Density Functions},
  author={Pyung Hun Chang},
  year={1999}
}
This paper examines two approaches to estimating implied risk-neutral probability density functions from the prices of European-style options. It sets up a monte carlo test to evaluate alternative techniques’ ability to recover simulated distributions based on Heston’s (1993) stochastic volatility model. The paper tests both for the accuracy and stability… CONTINUE READING