Arbitrage-based recovery

Horvath, F ORCID: 0000-0001-8562-4426 (2025) Arbitrage-based recovery Journal of Financial Economics, 163. p. 103969. ISSN 0304-405X

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Abstract

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.

Item Type:	Article
Uncontrolled Keywords:	3502 Banking, Finance and Investment, 35 Commerce, Management, Tourism and Services
Divisions:	Faculty of Humanities & Social Sciences Faculty of Humanities & Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	03 Dec 2024 13:48
Last Modified:	24 Jan 2026 05:05
DOI:	10.1016/j.jfineco.2024.103969
Open Access URL:	https://www.sciencedirect.com/science/article/pii/...
Related Websites:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3188997
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