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War and peace: recovering the market's probability distribution of crude oil futures prices during the Gulf crisis

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  • William R. Melick
  • Charles P. Thomas

Abstract

This paper investigates the market's expectations for oil prices during the Persian Gulf crisis. To do so a general method for using options markets to recover the implied distribution for futures prices is developed. The method applies to a wide class of distributions. In particular, it is not limited to those distributions arising from diffusion or jump-diffusion processes.

Suggested Citation

  • William R. Melick & Charles P. Thomas, 1992. "War and peace: recovering the market's probability distribution of crude oil futures prices during the Gulf crisis," International Finance Discussion Papers 437, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:437
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1992/437/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1992/437/ifdp437.pdf
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    References listed on IDEAS

    as
    1. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. "Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    3. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
    4. Trevor S. Breusch, 1986. "Hypothesis Testing in Unidentified Models," Review of Economic Studies, Oxford University Press, vol. 53(4), pages 635-651.
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    Cited by:

    1. Datta, Deepa Dhume & Londono, Juan M. & Ross, Landon J., 2017. "Generating options-implied probability densities to understand oil market events," Energy Economics, Elsevier, vol. 64(C), pages 440-457.
    2. Datta, Deepa Dhume & Londono, Juan M. & Ross, Landon J., 2017. "Generating options-implied probability densities to understand oil market events," Energy Economics, Elsevier, vol. 64(C), pages 440-457.
    3. William R. Melick & Charles P. Thomas, 1996. "Using options prices to infer PDF'S for asset prices: an application to oil prices during the Gulf crisis," International Finance Discussion Papers 541, Board of Governors of the Federal Reserve System (U.S.).
    4. Michael P. Leahy & Charles P. Thomas, 1996. "The sovereignty option: the Quebec referendum and market views on the Canadian dollar," International Finance Discussion Papers 555, Board of Governors of the Federal Reserve System (U.S.).

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