@article {Carr38, author = {Peter Carr and Jiming Yu}, title = {Risk, Return, and Ross Recovery}, volume = {20}, number = {1}, pages = {38--59}, year = {2012}, doi = {10.3905/jod.2012.20.1.038}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Carr was asked to share his thoughts on the current state of derivatives theory and practice. His response was to write a discussion and extension of one of the most provocative and potentially important new ideas in the field: Ross{\textquoteright}s recent paper on extracting both the risk-neutral density and the empirical density from a set of market option prices. This feat has long been regarded as impossible, so demonstrating that it is not is a major achievement. Carr and Yu detail how the proof is done and then present an alternative route to the same result, but starting from what may be considered a more tractable assumption that a numeraire portfolio exists.TOPICS: Options, statistical methods}, issn = {1074-1240}, URL = {https://jod.pm-research.com/content/20/1/38}, eprint = {https://jod.pm-research.com/content/20/1/38.full.pdf}, journal = {The Journal of Derivatives} }