Compute stock price probability distribution from option data (IB method & negative probabilities issue)
Compute stock price probability distribution from option data (IB method & negative probabilities issue)
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External question — Quantitative Finance Stack Exchange
Author: nxstock-trader
Original post: https://quant.stackexchange.com/questions/22441
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
I'm using a procedure as described in the interactive brokers article here (
https://www.interactivebrokers.com/en/index.php?f=5910&ns=T
) to compute a probability distribution from option (call) prices.
In essence you solve a very simple system of two linear equations at each strike.
The issue is I get negative probabilities coming out of it.
I'm looking for a simple and robust procedure to do this estimation. Thoughts?
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Quoted from Forex.com.bd-Editorial External question — Quantitative Finance Stack Exchange Author: nxstock-trader Source score (net votes, not local likes): 0 Original post: https://quant.stackexchange.com/questions/22441 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I'm using a procedure as described in the interactive brokers article here ( https://www.interactivebrokers.com/en/index.php?f=5910&ns=T ) to compute a probability distribution from option (call) prices. In essence you solve a very simple system of two linear equations at each strike. The issue is I get negative probabilities coming out of it. I'm looking for a simple and robust procedure to do this estimation. Thoughts?
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