Estimating forward looking distribution with the ross recovery theorem

Takuya Kiriu, Norio Hibiki

研究成果: Article

1 引用 (Scopus)

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Ross (2015) introduced a remarkable theorem, named the “Recovery Theorem.” It enables us to estimate the real world distribution from the risk neutral distribution derived from option prices under a particular assumption about a representative investor's risk preferences. The real world distribution estimated with the Recovery Theorem is suitable for many financial problems such as market risk management and portfolio optimization due to its forward looking nature. However, it is not easy to derive the appropriate estimators because of an ill-posed problem in the estimation process. We propose a new method to derive the accurate solution by formulating the regularization term involving prior information. Previous studies propose methods to estimate the real world distribution, but they do not investigate the estimation accuracy. We show the effectiveness of the proposed method through the numerical analysis with hypothetical data.

元の言語English
ページ(範囲)83-107
ページ数25
ジャーナルJournal of the Operations Research Society of Japan
62
発行部数2
DOI
出版物ステータスPublished - 2019 1 1

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ASJC Scopus subject areas

  • Decision Sciences(all)
  • Management Science and Operations Research

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