Type of Publication:  Journal article 
URI (citable link):  http://nbnresolving.de/urn:nbn:de:bsz:352opus52936 
Author:  Jackwerth, Jens Carsten; Rubinstein, Mark 
Year of publication:  1996 
Published in:  Journal of Finance ; 51 (1996), 5.  pp. 16111631 
DOI (citable link):  https://dx.doi.org/10.1111/j.15406261.1996.tb05219.x 
Summary: 
This article derives underlying asset riskneutral probability distributions of European options on the S&P 500 index. Nonparametric methods are used to choose probabilities that minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices. Alternative optimization specifications produce approximately the same implied distributions. A new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distributions is proposed. Since the crash, the riskneutral probability of a three (four) standard deviation decline in the index (about 36 percent (46 percent) over a year) is about 10 (100) times more likely than under the assumption of lognormality.

Subject (DDC):  330 Economics 
Link to License:  Terms of use 
JACKWERTH, Jens Carsten, Mark RUBINSTEIN, 1996. Recovering Probability Distributions from Option Prices. In: Journal of Finance. 51(5), pp. 16111631. Available under: doi: 10.1111/j.15406261.1996.tb05219.x
@article{Jackwerth1996Recov12163, title={Recovering Probability Distributions from Option Prices}, year={1996}, doi={10.1111/j.15406261.1996.tb05219.x}, number={5}, volume={51}, journal={Journal of Finance}, pages={16111631}, author={Jackwerth, Jens Carsten and Rubinstein, Mark} }
Recovering_Probability_Distributions_from_Option_Prices.pdf  1419 