Estimation of real-world market probabilities by the Ross recovery theorem
Ross (2015) developed a recovery theorem with the aim to recover the physical probability distribution merely based on the option prices and discover the forward-looking content from the recovery. There have been studies that intensively discuss the possible extensions and robustness of this theorem...
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| Format: | Final Year Project |
| Language: | English |
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Nanyang Technological University
2022
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| Online Access: | https://hdl.handle.net/10356/156918 |
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| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | Ross (2015) developed a recovery theorem with the aim to recover the physical probability distribution merely based on the option prices and discover the forward-looking content from the recovery. There have been studies that intensively discuss the possible extensions and robustness of this theorem, some of which criticize its practicality. This thesis intends to build an algorithm based on the framework suggested by Jackwerth and Menner (2020) and explores its application on S&P 500 European call options. The results resembles what are presented in Jackwerth and Menner (2020). |
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