| Magazines |
33(2009) 692–709. |
| Author | Emmanuel Haven, XiaoquanLiu, Chenghu Ma, LiyaShen |
| Content | Options are believed to contain unique information on the risk-neutral moment generating function(MGF) or the risk-neutral probability density function(PDF) of the underlying asset. This paper applies the wavelet method to approximate the implied risk-neutral MGF from option prices. Monte Carlo simulations are carried out to show how therisk-neutralMGFcanbeobtainedusingthewaveletmethod.Withthe Black–Scholes model as the benchmark, we offer anovel method to reveal the implied MGF,and to price in-sample options and forecast out-of-sample option prices with the estimated MGF. |
| JEL-Codes | |
| Keywords | Waveletanalysis; Option pricing; Laplace transform. |
