Evaluating Implied RNDs by some New Confidence Interval Estimation Techniques

  title={Evaluating Implied RNDs by some New Confidence Interval Estimation Techniques},
  author={Magnus Andersson and Magnus Lomakka},
This paper evaluates the precision of the parametric double lognormal (DLN) and the nonparametric smoothing spline method (SPLINE) for estimating risk-neutral distributions (RNDs) from observed option prices. By using a bootstrap technique confidence bands are estimated for the riskneutral distributions (RNDs) and the width is used as the criterion when evaluating the precision of the two. Previous literature on estimating confidence bands has to a large extent been estimated by Monte Carlo… CONTINUE READING
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