A class of risk neutral densities with heavy tails

descriptionPublicationkeyboard_double_arrow_right Article 01 Jan 2001Publisher:Springer Science and Business Media LLCJournal:Finance and Stochastics, volume 5, pages 115-128 (issn: 0949-2984, eissn: 1432-1122,

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Authors: Niels Væver Hartvig; Jens Ledet Jensen; Jan Pedersen 0001;

doi: 10.1007/s007800000025

A class of risk neutral densities with heavy tails

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Abstract

The authors propose to use Christmas tree densities for the risk neutral densities and set up a Bayesian framework for studying the densities. A method for inferring the volatility from the risk neutral density is proposed. The authors apply this method to data on the S\&P 500 index.

Keywords

Applications of statistics to actuarial sciences and financial mathematics, inverse problems, risk neutral densities, diffusion model, Christmas tree densities, Markov chain Monte Carlo, Numerical analysis or methods applied to Markov chains, Christmas tree densities, risk neutral density, Markov chain Monte Carlo, inverse problems, diffusion model, Nonparametric estimation, Diffusion processes

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