The technique of using densities and conditional distributions to carry out consistent specification testing and model selection amongst multiple diffusion processes have received considerable attention from both financial theoreticians and empirical econometricians over the last two decades....

Risk neutral densities (RND) can be used to forecast the price of the underlying basis for the option, or it may be used to price other derivates based on the same sequence. The method adopted in this paper to calculate the RND is to firts estimate daily the diffusion process of the underlying...