PT  - JOURNAL ARTICLE
AU  - Peter Carr
AU  - Jiming Yu
TI  - Risk, Return, and Ross Recovery
AID  - 10.3905/jod.2012.20.1.038
DP  - 2012 Aug 31
TA  - The Journal of Derivatives
PG  - 38--59
VI  - 20
IP  - 1
4099  - https://pm-research.com/content/20/1/38.short
4100  - https://pm-research.com/content/20/1/38.full
AB  - Carr was asked to share his thoughts on the current state of derivatives theory and practice. His response was to write a discussion and extension of one of the most provocative and potentially important new ideas in the field: Ross’s recent paper on extracting both the risk-neutral density and the empirical density from a set of market option prices. This feat has long been regarded as impossible, so demonstrating that it is not is a major achievement. Carr and Yu detail how the proof is done and then present an alternative route to the same result, but starting from what may be considered a more tractable assumption that a numeraire portfolio exists.TOPICS: Options, statistical methods