Arbitrage-based recovery

• 成果类型: Article
• 署名作者: Horvath, Ferenc
• 署名单位: University of Liverpool
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103969
• 发表日期: 2025
• 关键词: Recovery theorem; Physical probabilities; stochastic discount factor; no-arbitrage

摘要

We develop a novel recovery theorem based on no-arbitrage principles. To implement our Arbitrage-Based Recovery Theorem empirically, one needs to observe the Arrow-Debreu prices only for one single maturity. We perform several different density tests and mean prediction tests using more than 26 years of S&P 500 options data, and we find evidence that our method can correctly recover the probability distribution of the S&P 500 index return on a monthly horizon, despite the presence of a non-trivial permanent SDF component.