[R-SIG-Finance] SPD and RND estimation

Panov, Evgeny evgeny.panov at citi.com
Mon Jul 16 14:58:55 CEST 2007

Dear Sankalp,

As a cooking recipe, will probably benefit a lot from first converting the prices into Black-Scholes implied volatilities and then smoothing the implied volatilities, after which you can go back into price space (don't worry about unknown dividend yield - you can back it out from put-call parity).

Best regards,

-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch]On Behalf Of Sankalp
Sent: Sunday, July 15, 2007 8:55 AM
To: R-sig-finance at stat.math.ethz.ch
Subject: [R-SIG-Finance] SPD and RND estimation


I am trying to do an estimation of State Price Density (SPD) and Risk
Neutral Density (RND) from a set of option prices - preferably in a
non-parametric way.
Is there some package in R that can help? fOptions does not seem to be have

Alternatively, would you know a standard method or a very good research
paper/article/reference on this topic? The utility being that a good
paper/article can be changed to R code easily.

Many thanks,


Sankalp Upadhyay

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