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Author: Noureddine Krichene
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
Option prices provide valuable information on market expectations. This paper attempts to extract market expectations, as conveyed by an implied risk-neutral probability distribution, from option prices for the dollar-euro exchange rate. Returns` volatilities are inferred from observed and interpolated option prices. To address robustness, two distributions, one from actual data and the other from interpolated data, were computed. The main conclusion of the paper is that traders have wide-ranging expectations, and large movements in either direction would not occur as a surprise. The main implication for monetary policy is that should markets become too volatile, then intervention may be required.
Author: Noureddine Krichene
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
Option prices provide valuable information on market expectations. This paper attempts to extract market expectations, as conveyed by an implied risk-neutral probability distribution, from option prices for the dollar-euro exchange rate. Returns` volatilities are inferred from observed and interpolated option prices. To address robustness, two distributions, one from actual data and the other from interpolated data, were computed. The main conclusion of the paper is that traders have wide-ranging expectations, and large movements in either direction would not occur as a surprise. The main implication for monetary policy is that should markets become too volatile, then intervention may be required.
Author: Noureddine Krichene
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 30
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Book Description
Option prices provide valuable information on market expectations. This paper attempts to extract market expectations, as conveyed by an implied risk-neutral probability distribution, from option prices for the dollar-euro exchange rate. Returns' volatilities are inferred from observed and interpolated option prices. To address robustness, two distributions, one from actual data and the other from interpolated data, were computed. The main conclusion of the paper is that traders have wide-ranging expectations, and large movements in either direction would not occur as a surprise. The main implication for monetary policy is that should markets become too volatile, then intervention may be required.
Author: Áron Gereben
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 28
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Book Description
Author: Zhaohui Chen
Publisher: World Scientific
ISBN: 9814499161
Category : Business & Economics
Languages : en
Pages : 218
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Book Description
This volume is a collection of classical and recent empirical studies of currency options and their implications for issues of exchange rate economics, such as exchange rate risk premium, volatility, market expectations, and credibility of exchange rate regimes. It contains applications on how to extract useful information from option market data for financial forecasting policy purposes. The subjects are discussed in a self-contained, user-friendly format, with introductory chapters on currency option theory and currency option markets.The book can be used as supplementary reading for graduate finance and international economics courses, as training material for central bank and regulatory authorities, or as a reference book for financial analysts.
Author: Martin Mandler
Publisher: Springer Science & Business Media
ISBN: 3642574289
Category : Business & Economics
Languages : en
Pages : 227
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Book Description
This book is a slightly revised version of my doctoral dissertation which has been accepted by the Department of Economics and Business Administration of the Justus-Liebig-Universitat Giessen in July 2002. I am indebted to my advisor Prof. Dr. Volbert Alexander for encouraging and supporting my research. I am also grateful to the second member of the doctoral committee, Prof. Dr. Horst Rinne. Special thanks go to Dr. Ralf Ahrens for providing part of the data and to my colleague Carsten Lang, who spent much time reading the complete first draft. Wetzlar, January 2003 Martin Mandler Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Part I Theoretical Foundations 2 Arbitrage Pricing and Risk-Neutral Probabilities........ .. 7 2.1 Arbitrage Pricing in the Black/Scholes-Merton Model... . . .. . 7 2.2 The Equivalent Martingale Measure and Risk-Neutral Valuation ............................................... 11 2.3 Extracting Risk-Neutral Probabilities from Option Prices. . . .. 13 2.4 Summary............................................... 15 Appendix 2A: The Valuation Function in the Black/Scholes-Merton Model .................................................. 16 Appendix 2B: Some Further Details on the Replication Strategy ... 21 3 Survey of the Related Literature .......................... 23 3.1 The Information Content of Forward and Futures Prices. . . .. . 24 3.2 The Information Content of Implied Volatilities ............. 25 3.2.1 Implied Volatilities and the Risk-Neutral Probability Density .......................................... 27 3.2.2 The Term Structure of Implied Volatilities. . . . . . . .. . . 29 . 3.2.3 The Forecasting Information in Implied Volatilities. . .. 30 3.2.4 Implied Correlations as Forecasts of Future Correlations 43 VIII Contents 3.3 The Skewness Premium ..... . . . . . . . . . . . . . . . . . . .. . . 45 . . . . . . .
Author: Alejandro García
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages :
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Book Description
Security prices contain valuable information that can be used to make a wide variety of economic decisions. To extract this information, a model is required that relates market prices to the desired information, and that ideally can be implemented using timely and low-cost methods. The authors explore two models applied to option prices to extract the risk-neutral probability density function (R-PDF) of the expected Can$/US$ exchange rate. Each of the two models extends the Black-Scholes model by using a mixture of two lognormals for the terminal distribution, instead of a single lognormal: one mixed lognormal imposes a specific stochastic process for the underlying asset, and the other does not. The contribution of the paper is to propose a simple methodology to build R-PDFs with a constant time to maturity in the absence of option prices for the maturity of interest. The authors apply this methodology and find that the two models provide similar results for the degree of uncertainty (i.e., the variance) surrounding the future level of the exchange rate, but differ on the likely direction of the exchange rate movements (i.e., the skewness).
Author: Allan M. Malz
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
Risk reversals are a combination of options from which price information about market expectations of future exchange rates can be extracted. This paper describes a procedure for estimating the market's perceived probability distribution of future exchange rates from the prices of risk reversals and other currency options. This procedure is used to estimate the ex ante probability of a realignment of the French franc and pound sterling. The procedure for estimating the realignment probabilities relies on the jump-diffusion model of exchange rate behavior and the resulting option pricing formula. By fitting this model to market option price data, the unobserved parameters of the jump-diffusion process are retrieved. These parameter estimates form the basis for estimating the ex ante probability distribution of exchange rates and thus the realignment probabilities.
Author: Eduardo Borensztein
Publisher:
ISBN:
Category :
Languages : en
Pages : 60
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Book Description
This paper tests alternative assumptions concerning the time series behavior of foreign exchange rates. Data for about 20,000 individual trades on foreign exchange options for dollar exchange rates against six major currencies carried out from February 1983 to June 1985 are analyzed. The tests carried out suggest that, judging from the predictions of a model of options prices based on the assumption that exchange rates follow a diffusion process, market participants paid too high a price for call options that would have been profitable only if the dollar depreciated substantially within a short time period. An alternative model which allows for discrete jumps in exchange rates is found to be more consistent with the data.
Author: Jorge A. Chan-Lau
Publisher:
ISBN:
Category : Currency question
Languages : en
Pages : 34
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Book Description
Author: International Monetary Fund. African Dept.
Publisher: International Monetary Fund
ISBN: 1451950292
Category : Business & Economics
Languages : en
Pages : 97
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Book Description
The five Regional Economic Outlooks published biannually by the IMF cover Asia and Pacific, Europe, the Middle East and Central Asia, Sub-Saharan Africa, and the Western Hemisphere. In each volume, recent economic developments and prospects for the region are discussed as a whole, as well as for specific countries. The reports include key data for countries in the region. Each report focuses on policy developments that have affected economic performance in the region, and discusses key challenges faced by policymakers. The near-term outlook, key risks, and their related policy challenges are analyzed throughout the reports, and current issues are explored, such as when and how to withdraw public interventions in financial systems globally while maintaining a still-fragile economic recovery.These indispensable surveys are the product of comprehensive intradepartmental reviews of economic developments that draw primarily on information the IMF staff gathers through consultation with member countries.
