The Impact of the Prior Density on a Minimum Relative Entropy Density: A Case Study with SPX Option Data

The Impact of the Prior Density on a Minimum Relative Entropy Density: A Case Study with SPX Option Data

We study the problem of finding probability densities that match given European call option prices. To allow prior information about such a density to be taken into account, we generalise the algorithm presented in Neri and Schneider (Appl. Math. Finance 2013) to find the maximum entropy density of...

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Bibliographic Details
Main Authors: Cassio Neri, Lorenz Schneider
Format: Article
Language:English
Published: MDPI AG 2014-05-01
Series:Entropy
Subjects:
entropy
relative entropy
Kullback–Leibler information number
asset distribution
option pricing
Fourier transform
variance swap
Online Access:http://www.mdpi.com/1099-4300/16/5/2642

Internet

http://www.mdpi.com/1099-4300/16/5/2642

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