Fisher information and equilibrium distributions in econophysics

We present a novel application of constrained Fisher information: the reconstruction of probability densities implicit in financial security prices. We illustrate the potential of this method by calculating the densities implicit in bond and option prices and find the resulting densities to be in accord with commonly held priors concerning density smoothness. We also show that the Cramer-Rao bound can be used to generalize the concept of asset-price volatility.