The implied probability distribution - A study of Swedish equity index options

Sammanfattning: This paper examines the option-implied risk-neutral probability distribution for index options traded on the Stockholm market over two decades. The focus is on the method of derivation with the goal of being valuable as a reference for future research as well as being valuable for its results. The key results are: (i) the Swedish implied distribution is similar in shape to the US implied distribution, (ii) the Black-Scholes model doesn't sufficiently explain option prices, (iii) there is significant time-variation in the implied volatility smile and (iv) put-call parity is violated by the volatility smile.