From observed bid and ask prices of European call and put options we estimate the risk neutral density of a stock at some future time t gt; 0. We restrict attention to a class of densities with heavy tails and use a Bayesian formulation in order to study the variation in the distributions...

We consider a binomial model that converges towards a Black-Scholes model as the number of trading dates increases to infinity. The models considered are complete and hence every claim is generated by an appropriate trading strategy. Fixing a path dependent claim the paper treats weak and...