%0 Journal Article %A Peter Carr %A Jiming Yu %T Risk, Return, and Ross Recovery %D 2012 %R 10.3905/jod.2012.20.1.038 %J The Journal of Derivatives %P 38-59 %V 20 %N 1 %X 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’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 %U https://jod.pm-research.com/content/iijderiv/20/1/38.full.pdf