Research Foundation Books 01 Mar 2004 Volume 2004 Issue 1
Option-Implied Risk-Neutral Distributions and Risk Aversion
Option-Implied Risk-Neutral Distributions and Risk AversionView the full book (PDF)
Analysts are accustomed to using prices for the information they contain. A stock price, for example, can be thought of as an expected value of future cash flows. Each futures price and option price tells the analyst a bit more about the probability distribution under which those expectations should be accepted. In this Research Foundation monograph, the author describes what can and cannot be learned from option prices for applications in financial analysis and provides examples for each step so that the reader can actually apply the concepts.