FX Option Implied Distribution

sacevoy · April 29th, 2009, 7:06 am

anybody know a good paper or discussion on backing out FX option implied distributions from 10&25delta RR and Flys?I do it with equity index call quotes (after some interpolation considerations) using:P_implied(K,T)=exp(rT)*C''(K)My intuition suggests the same should be possible using RR and Flys for FX (perhaps even just Flys)any help appreciatedrgds

mmar02 · April 29th, 2009, 11:48 am

try Malz, A. M., 1997, Estimating the Probability Distribution of the Future Exchange Rate from Option Prices, The Journal of Derivatives, Vol. 5, pp. 18-36.

sacevoy · April 29th, 2009, 1:39 pm

great thks ... just the thing