Instruct: Identify the main and secondary category of Arxiv papers based on the titles and abstracts
Query: Non-Parametric Extraction of Implied Asset Price Distributions   Extracting the risk neutral density (RND) function from option prices is well
defined in principle, but is very sensitive to errors in practice. For risk
management, knowledge of the entire RND provides more information for
Value-at-Risk (VaR) calculations than implied volatility alone [1]. Typically,
RNDs are deduced from option prices by making a distributional assumption, or
relying on implied volatility [2]. We present a fully non-parametric method for
extracting RNDs from observed option prices. The aim is to obtain a continuous,
smooth, monotonic, and convex pricing function that is twice differentiable.
Thus, irregularities such as negative probabilities that afflict many existing
RND estimation techniques are reduced. Our method employs neural networks to
obtain a smoothed pricing function, and a central finite difference
approximation to the second derivative to extract the required gradients.
  This novel technique was successfully applied to a large set of FTSE 100
daily European exercise (ESX) put options data and as an Ansatz to the
corresponding set of American exercise (SEI) put options. The results of paired
t-tests showed significant differences between RNDs extracted from ESX and SEI
option data, reflecting the distorting impact of early exercise possibility for
the latter. In particular, the results for skewness and kurtosis suggested
different shapes for the RNDs implied by the two types of put options. However,
both ESX and SEI data gave an unbiased estimate of the realised FTSE 100
closing prices on the options' expiration date. We confirmed that estimates of
volatility from the RNDs of both types of option were biased estimates of the
realised volatility at expiration, but less so than the LIFFE tabulated
at-the-money implied volatility.

22
The categories of this paper are: chao-dyn
0
The categories of this paper are: hep-ph
25
The categories of this paper are: patt-sol
8
The categories of this paper are: hep-ex
18
The categories of this paper are: econ
30
The categories of this paper are: q-alg
7
The categories of this paper are: hep-th
33
The categories of this paper are: plasm-ph
1
The categories of this paper are: cs
2
The categories of this paper are: math
14
The categories of this paper are: math-ph
26
The categories of this paper are: bayes-an
29
The categories of this paper are: funct-an
37
The categories of this paper are: supr-con
16
The categories of this paper are: stat
11
The categories of this paper are: hep-lat