This chapter deals with the estimation of risk neutral distributions for pricing index options resulting from the hypothesis of the risk neutral valuation principle. After justifying this hypothesis, we shall focus on parametric estimation methods for the risk neutral density functions...

In the paper we present the application of risk neutral measure estimation in the analysis of the index WIG20 from Polish stock market. The risk neutral measure is calculated from the process of the options on that index. We assume that risk neutral measure is the mixture of lognormal...

Following Shimko (1993), a large amount of research has evolved around the problem of extracting risk neutral densities from options prices by interpolating the Black-Scholes implied volatility smile. Some of the methods recently proposed use variants of the cubic spline. These methods have the...