Advanced Search
MyIDEAS: Login to save this paper or follow this series

Reading Interest Rate and Bond Futures Options' Smiles: How PIBOR and National Operators Appreciated the 1997 French Snap Election


Author Info

  • Coutant, S.
  • Jondeau, E.
  • Rockinger, M.


The aim of this paper is to compare various methods which extract a Risk Neutral Density (RND) out of PIBOR as well as of Notional interest rate futures options and to investigate how traders reacted to a political event. We first focus on 5 dates surrounding the 1997 snap election and several methods: Black (1976), a mixture of lognormals (as in Melick and Thomas, 1997), an Hermite expansion (as in Abken, Madan, and Ramamurtie, 1996), and a method based on Maximum Entropy (following Kelly and Buchen, 1996). By and large the various methods give similar RNDs. Yet, the Hermite expansion approach, by allowing for somewhat dirty options prices, by providing a good fit to options prices, and by being very fast is the retained method for the data at hand. We then consider a daily panel of options running from February 1997 to July 1997. After constructing standardized options, i.e. with a fixed time to maturity, we find that operators in both markets anticipated the snap election a few days before the official announcement and that a substantial amount of political uncertainty subsisted even a month after the elections. The greater liquidity of PIBOR options eases information extraction.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 54.

as in new window
Length: 28 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:bfr:banfra:54

Contact details of provider:
Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page:
More information through EDIRC

Related research

Keywords: Interest rate ; Pricing ; Risk ; Politics;

Find related papers by JEL classification:


No references listed on IDEAS
You can help add them by filling out this form.


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. de Vincent-Humphreys, Rupert & Puigvert GutiƩrrez, Josep Maria, 2010. "A quantitative mirror on the Euribor market using implied probability density functions," Working Paper Series 1281, European Central Bank.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:54. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael brassart).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.