Comparing Risk-Neutral Probability Density Functions Implied by Option Prices - Market Uncertainty and Ecb-Council Meetings

24 Pages Posted: 13 Feb 2002

See all articles by Martin Mandler

Martin Mandler

Deutsche Bundesbank - Economics Department; University of Giessen - Department of Economics

Date Written: January 2002

Abstract

In recent years different techniques to uncover the information on market expectations implicit in option prices have been developed. This paper proposes an approach to highlight statistically significant changes in risk-neutral probability density functions by comparing the distributional characteristics of statistics derived from risk-neutral densities to those of a benchmark sample. In an application we extract risk-neutral probability density functions from LIFFE-Euribor futures options and look for characteristic differences in market expectations related to meetings of the Governing Council of the ECB.

Keywords: implied probability density functions, risk-neutral expectations, option prices, monetary policy

JEL Classification: G14, E58

Suggested Citation

Mandler, Martin, Comparing Risk-Neutral Probability Density Functions Implied by Option Prices - Market Uncertainty and Ecb-Council Meetings (January 2002). Available at SSRN: https://ssrn.com/abstract=298779 or http://dx.doi.org/10.2139/ssrn.298779

Martin Mandler (Contact Author)

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

University of Giessen - Department of Economics ( email )

Licher Str. 62
Giessen, Hessen D-35394
Germany

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