Estimating Implied Pdfs from American Options on Futures: A New Semi-Parametric Approach

Posted: 30 Jul 2004 Last revised: 24 Mar 2008

See all articles by Dimitris Flamouris

Dimitris Flamouris

ABN Amro

Daniel Giamouridis

Bank of America - Bank of America Merrill Lynch; City University London - Cass Business School - Faculty of Finance; EDHEC Risk Institute

Abstract

This article develops a new methodology for estimating the risk neutral density implied by American type futures options. The methodology employed uses an Edgeworth series expansion parameterization for the probability distribution of asset returns. Data from the crude oil market are used to test a number of hypotheses. It is found that the market consensus can be accurately reflected in the recovered densities. The risk neutral densities are also found to differ significantly from a single lognormal distribution. In addition, they prove to be more robust than risk neutral densities recovered with a model, which assumes a mixture of two lognormal distributions.

Note: This is a description of the paper and not the actual abstract.

JEL Classification: G10, G12, G13

Suggested Citation

Flamouris, Dimitris and Giamouridis, Daniel, Estimating Implied Pdfs from American Options on Futures: A New Semi-Parametric Approach. Journal of Futures Markets , Vol. 22, No. 1, pp. 1-30, January 2002, Available at SSRN: https://ssrn.com/abstract=566441

Dimitris Flamouris

ABN Amro ( email )

250 Bishopsgate
London, NY EC2M 4AA
United Kingdom
+442076783158 (Phone)

Daniel Giamouridis (Contact Author)

Bank of America - Bank of America Merrill Lynch ( email )

United Kingdom

City University London - Cass Business School - Faculty of Finance ( email )

London, EC2Y 8HB
Great Britain

EDHEC Risk Institute ( email )

Lille
France

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