Implicit in the prices of traded financial assets are Arrow- Debreu state prices or, in the continuous-state case, the state-price density (SPD). We construct an estimator for the SPD implicit in option prices and derive an asymptotic sampling theory for this estimator to gauge its accuracy. The...

I define the micro-price to be the limit of a sequence of expected mid-prices and provide conditions for this limit to exist. The micro-price is a martingale by construction and can be considered to be the ‘fair' price of an asset, conditional on the information in the order book. The...