Confidence Intervals and Constant-Maturity Series for Probability Measures Extracted from Options Prices

Market participants and researchers have always used information contained in financial prices to analyze economic and financial developments. Over the past three decades, larger and deeper financial markets have increased the amount and variety of information available, while declining computing costs have allowed more sophisticated techniques and models to be considered. As well, the rapid rise in derivatives trading has widened the set of information that can be extracted from the markets. For example, several techniques have recently been developed to extract probability density functions (PDFs) for the underlying asset from options prices—see Melick and Thomas (1997) and references therein.