Recent Developments in Extracting Information from Options Markets
11 Pages Posted: 1 Aug 2005
The Monetary Policy Committee is provided with information from options markets to quantify market uncertainty about the future course of financial asset prices. For short-term interest rates, this is shown in the Inflation Report's blue fan chart. Similar information can be obtained from a wide range of other assets. This article compares the performance of alternative techniques for extracting information from options prices. Using a technique for estimating uncertainty about interest rates at a constant horizon a short way into the future, we consider how this uncertainty has evolved since the Bank was granted operational independence in May 1997.
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