Affiliation:
1. University of St. Gallen
2. University of Zurich
Abstract
Abstract
Building on the method of Ludwig (2015) to construct robust state price density surfaces from snapshots of option prices, we develop a nonparametric estimation strategy based on the recovery theorem of Ross (2015). Using options on the S&P 500, we then investigate whether or not recovery yields predictive information beyond what can be gleaned from risk-neutral densities. Over the 13 year period from 2000 to 2012, we find that market timing strategies based on recovered moments outperform those based on risk-neutral moments.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics,Finance
Cited by
17 articles.
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