We study the problem of finding probability densities that match given European call option prices. To allow prior information about such a density to be taken into account, we generalise the algorithm presented in Neri & Schneider (Applied Mathematical Finance, 2013) to find the maximum entropy...

We investigate the position of the Buchen-Kelly density in the family of entropy maximising densities from Neri & Schneider (2012) which all match European call option prices for a given maturity observed in the market. Using the Legendre transform which links the entropy function and the...

We obtain the maximum entropy distribution for an asset from call and digital option prices. A rigorous mathematical proof of its existence and exponential form is given, which can also be applied to legitimise a formal derivation by Buchen and Kelly (JFQA 31:143-159, 1996). We give a simple and...

We investigate the position of the Buchen-Kelly density (Peter W. Buchen and Michael Kelly. The maximum entropy distribution of an asset inferred from option prices. <italic>Journal of Financial and Quantitative Analysis</italic>, <italic>31</italic>(1), 143-159, March 1996.) in the family of entropy maximizing densities from...

In Neri and Schneider (2012) we presented a method to recover the Maximum Entropy Density (MED) inferred from prices of call and digital options on a set of n strikes. To find the MED we need to numerically invert a one-dimensional function for n values and a Newton-Raphson method is suggested....

We investigate the position of the Buchen-Kelly density in a family of entropy maximising densities which all match European call option prices for a given maturity observed in the market. Using the Legendre transform which links the entropy function and the cumulant generating function, we show...