Extracting implicit density functions from short term interest rate options
AbstractUsing option prices the expectations of the market participants concerning the underlying asset can be extracted as well as the uncertainty surrounding these expectations. In this paper a mixture of lognormal density functions will be assumed to analyze options on three-month Euribor futures for the period between August and November 2000. During this period the ECB raised the interest rates and intervened in the exchange markets, both actions that could have an effect on the expectations of a short term interest rate. As will be shown the expected mean as well as the higher moments of the distribution show quite large movements, which can in part be associated directly with these interventions. --
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Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2001,47.
Date of creation: 2001
Date of revision:
monetary policy; implicit density function; interest rate options; market expectations;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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