The Forecasting Performance of German Stock Option Densities

34 Pages Posted: 1 Nov 2007

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

Ernst Glatzer

Austrian National Bank - Economic Studies Division

Joachim Keller

Deutsche Bundesbank - Economic Research Centre

Martin Scheicher

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2003

Abstract

In this paper the authors estimate risk-neutral densities (RND) for the largest euro-area stock market (the index of which is the German DAX), reporting their statistical properties, and evaluating their forecasting performance. The authors have applied an innovative test procedure to a new, rich, and accurate data set. They have two main results. First, They have recorded strong negative skewness in the densities. Second, they find evidence for a significant difference between the actual density and the risk-neutral density, leading to the conclusion that market participants were surprised by the extent of both the rise and the fall of the DAX.

Keywords: option prices, risk-neutral density, density evaluation, overlapping data

JEL Classification: C52, C22, G13, G15

Suggested Citation

Craig, Ben R. and Glatzer, Ernst and Keller, Joachim and Scheicher, Martin, The Forecasting Performance of German Stock Option Densities (November 2003). FRB of Cleveland Working Paper No. 03-12, Available at SSRN: https://ssrn.com/abstract=1026275 or http://dx.doi.org/10.2139/ssrn.1026275

Ben R. Craig (Contact Author)

Federal Reserve Bank of Cleveland ( email )

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Deutsche Bundesbank

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Ernst Glatzer

Austrian National Bank - Economic Studies Division ( email )

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Joachim Keller

Deutsche Bundesbank - Economic Research Centre ( email )

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Martin Scheicher

European Central Bank (ECB) ( email )

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