The Probability Density Function of Interest Rates Implied in the Price of Options
AbstractThe paper contributes to the stochastic volatility literature by developing simulation schemes for the conditional distributions of the price of long term bonds and their variability based on non-standard distributional assumptions and volatility concepts; it illustrates the potential value of the information contained in the prices of options on long and short term lira interest rate futures for the conduct of monetary policy in Italy, at times when significant regime shifts have occured.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 339.
Date of creation: Oct 1998
Date of revision:
stochastic models; statistical analysis; interest rates; financial market;
Other versions of this item:
- Fornari, F. & Violi, R., 1998. "The Probability Density Function of Interest Rates Implied in the Price of Options," Papers 339, Banca Italia - Servizio di Studi.
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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"Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study,"
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- Stefano Siviero & Daniele Terlizzese & Ignazio Visco, 1999. "Are model-based inflation forecasts used in monetary policymaking? A case study," Temi di discussione (Economic working papers) 357, Bank of Italy, Economic Research and International Relations Area.
- Martin Mandler, 2002. "Extracting Market Expectations from Option Prices: Two Case Studies in Market Perceptions of the ECB's Monetary Policy 1999/2000," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(II), pages 165-189, June.
- Marcello Pericoli, 2005. "Can option smiles forecast changes in interest rates? An application to the US, the UK and the euro area," Temi di discussione (Economic working papers) 545, Bank of Italy, Economic Research and International Relations Area.
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