Summary statistics of option-implied probability density functions and their properties
AbstractThe statistics that summarise probability density functions(pdfs) implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. A time-series analysis of these statistics for equity index and interest rate markets provides some stylised facts about the behaviour of these elements of market expectations, their historical distribution, similarity and relative stability. Relationships between them and movements in underlying asset prices are considered. Cross-asset and cross-country comparisons and the information content of the implied pdfs for future macroeconomic and financial variables are also assessed.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 345.
Length: 46 pages
Date of creation: Mar 2008
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Options; implied probability density functions (pdfs); summary statistics; implied volatility; implied asymmetry; market expectations.;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-20 (All new papers)
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