[R-SIG-Finance] SPD and RND estimation

[kriskumar at earthlink.net]

Assuming you have a continuoum of call and put prices the RND could be directly estimated from numerical differentiation dC^2/dK^2 not clean and stable but a poor man's RND.

The problem one always has is with the wings and how to extrapolate in there and that is not an easy one to solve. 

Best
Kris 
 
“…it is more important to have beauty in one’s equations than to have them fit experiment…It seems that if one is working from the point of view of getting beauty in one’s equations, and if one has really a sound insight, one is on a sure line of progress.” -Dirac

-----Original Message-----
From: "Sankalp Upadhyay" <sankalp.upadhyay at gmail.com>

Date: Sun, 15 Jul 2007 18:25:09 
To:R-sig-finance at stat.math.ethz.ch
Subject: [R-SIG-Finance] SPD and RND estimation


Hi,

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
this.

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

-- 
--
Sankalp Upadhyay

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