The forecast ability of risk-neutral densities of foreign exchange
We estimate the process underlying the pricing of American options by using higher-order lattices combined with a multigrid method. This paper also tests whether the risk-neutral densities given from American options provide a good forecasting tool. We use a nonparametric test of the densities that is based on the inverse probability functions and is modified to account for correlation across time between our random variables, which are uniform under the null hypothesis. We find that the densities based on the Americanoption markets for foreign exchange do quite well for the forecasting period over which the options are thickly traded. Further, simple models that fit the densities do about as well as more sophisticated models.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Postfach 10 06 02, 60006 Frankfurt|
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Web page: http://www.bundesbank.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
- Falko Fecht & Kevin Huang, 2004.
"Financial intermediaries, markets, and growth,"
Econometric Society 2004 North American Summer Meetings
419, Econometric Society.
- Fecht, Falko & Huang, Kevin & Martin, Antoine, 2005. "Financial intermediaries, markets and growth," Discussion Paper Series 1: Economic Studies 2005,03, Deutsche Bundesbank, Research Centre.
- Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2004. "Financial intermediaries, markets, and growth," Research Working Paper RWP 04-02, Federal Reserve Bank of Kansas City.
- Falko Fecht & Kevin X.D. Huang & Antoine Martin, 2007. "Financial Intermediaries, Markets, and Growth," Vanderbilt University Department of Economics Working Papers 0714, Vanderbilt University Department of Economics.
- Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2004. "Financial intermediaries, markets, and growth," Working Papers 04-24, Federal Reserve Bank of Philadelphia.
When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp2:4260. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.