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The Empirical Performance of Option Based Densities of Foreign Exchange

Keller, Joachim G.; Craig, Ben R. - 2002

Risk neutral densities (RND) can be used to forecast the price of the underlying basis for the option, or it may be used to price other derivates based on the same sequence. The method adopted in this paper to calculate the RND is to firts estimate daily the diffusion process of the underlying...

Persistent link: https://www.econbiz.de/10010295724

Pricing of options under different volatility models

Herzberg, Markus; Sibbertsen, Philipp - 2004

volatility models including long memory and leverage effects. We compute the price by applying a present value scheme as well as … the Black-Scholes and Hull-White formulas which includes stochastic volatility. We find that long memory as well as …

Persistent link: https://www.econbiz.de/10010296646

Implied volatility of foreign exchange options: Is it worth tracking?

Gereben, Áron; Pintér, Klára - 2005

Market analysts and central banks often use the implied volatility of FX options as an indicator of expected exchange … deviate the value of implied volatility from the exchange rate variability expected by the market. These biasing factors are … one month. However, implied volatility provides a biased estimate, and does not encompass the information included in …

Persistent link: https://www.econbiz.de/10010322417

A diffusion approximation for the riskless profit under selling of discrete time call options: Non-identically distributed jumps

Nagaev, Alexander V.; Nagaev, Sergei A.; Kunst, Robert M. - 2005

A discrete time model of financial markets is considered. It is assumed that the relative jumps of the risky security price are independent non-identically distributed random variables. In the focus of attention is the expected non-risky profit of the investor that arises when the jumps of the...

Persistent link: https://www.econbiz.de/10010293743

Volatility extraction using the Kalman filter

Kuchynka, Alexandr - 2008

This paper focuses on the extraction of volatility of financial returns. The volatility process is modeled as a … the volatility is not observable, the logarithm of the daily high-low range is employed as its proxy. The estimation of … parameters and volatility extraction are performed using a modified version of the Kalman filter which takes into account the …

Persistent link: https://www.econbiz.de/10010322165

Assessing Central Bank Credibility During the EMS Crises : Comparing Option and Spot Market-Based Forecasts

Haas, Markus; Mittnik, Stefan; Mizrach, Bruce - 2004

Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulated moments estimator for option volatilities described in Mizrach (2002); the second is a new approach...

Persistent link: https://www.econbiz.de/10010263203

Evaluating Density Forecasts with an Application to Stock Market Returns

Raunig, Burkhard; de Raaij, Gabriela - 2002

Density forecasts have become quite important in economics and finance. For example, such forecasts play a central role in modern financial risk management techniques like Value at Risk. This paper suggests a regression based density forecast evaluation framework as a simple alternative to other...

Persistent link: https://www.econbiz.de/10010295725

Volatility models with innovations from new maximum entropy densities at work

Fischer, Matthias J.; Gao, Yang; Herrmann, Klaus - 2010

financial return data because they are able to capture volatility clustering as well as leptokurtic unconditional distributions …

Persistent link: https://www.econbiz.de/10010299994

The Generalized Lognormal Distribution and the Stieltjes Moment Problem

Kleiber, Christian - 2012

volatility. Compared to the classical lognormal distribution it has an additional shape parameter. It emerges that moment (in …

Persistent link: https://www.econbiz.de/10011390679

Parametric estimation of risk neutral density functions

Grith, Maria; Krätschmer, Volker - 2010

This chapter deals with the estimation of risk neutral distributions for pricing index options resulting from the hypothesis of the risk neutral valuation principle. After justifying this hypothesis, we shall focus on parametric estimation methods for the risk neutral density functions...

Persistent link: https://www.econbiz.de/10010281587