Derivation of discrete analog of Breeden–Litzenberger relation for risk-neutral density
Abhimanyu Kumar · International Journal of Financial Engineering · 2024
This short paper derives a formula for the risk-neutral density function at discrete points over the strike range using Abel’s summation formula in terms of the arbitrage-free call price function in a European option contingent. The estimate of risk-neutral density is crucial from a risk management perspective and other crucial assessments.