This paper describes a method of extracting the risk-neutral probability distribution of future exchange rates from option prices. In foreign exchange markets interbank option pricing conventions make possible reliable inferences about risk-neutral probability distributions with relatively...

The paper presents a method of computing the risk neutral probability distribution of future exchange rates from the prices of currency options. The method is applied to estimate the risk neutral ex ante probability of a realignment of the pound sterling against the mark in 1992. The computation...

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...

Some market observers attribute the dollar's recent drop against the mark and yen to a type of currency option known as the knockout option. Although knockouts did contribute modestly to the dollar's fall, their full impact was felt to a much greater extent in the option markets

This paper describes a method of extracting the risk-neutral probability distribution of future exchange rates from option prices. In foreign exchange markets interbank option pricing conventions make possible reliable inferences about risk-neutral probability distributions with relatively...

This paper describes a method for computing risk-neutral density functions based on the option-implied volatility smile. Its aim is to reduce complexity and provide cookbook-style guidance through the estimation process. The technique is robust and avoids violations of option no-arbitrage...

Certain financial instruments provide information on expectations of future interest rate movements. One relatively new instrument is yield curve options, which allow investors to take financial positions on a range of possible future interest rates. These options can shed light on the views of...

Interbank fixed income claims are a rich but neglected source of information on the term structure of interest rates and interest rate expectations. The first half of this paper describes the information content of two types of over-the-counter interest rate derivatives, forward rate agreements...