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...

Pricing kernels implicit in option prices play a key role in assessing the risk aversion over equity returns. We deal with nonparametric estimation of the pricing kernel (Empirical Pricing Kernel) given by the ratio of the risk-neutral density estimator and the subjective density estimator. The...