Synopses & Reviews
This book surveys and summarizes the numerous approaches used to extract information on market expectations from option prices. The various approaches are thoroughly explained and many practical issues are discussed, including: data selection, data preparation, and presentation and interpretation of results. This enables the reader to easily implement these techniques in his own applied work. Most studies concerning uncertainty in financial markets focus on actual uncertainty as represented by historical volatility measures, variances etc. In contrast, using option prices allows us to study uncertainty in expectations, i.e. to take a forward looking perspective. In some applications we study how ECB-council meetings affect uncertainty in money market expectations. Most interesting among our results is a number of event studies which compare how uncertainty in market participants' expectations reacts to anticipated and unanticipated results of ECB-council meetings.
Synopsis
Includes bibliographical references (p. [209]-227).
Table of Contents
Introduction.- Part I: Theoretical Foundations: Arbitrage Pricing and Risk-Neutral-Probabilities; Survey of the Related Literature; Presenting and Interpreting Risk-Neutral Probabilities; Techniques for Extracting Risk-Neutral Probabilities from Option Prices; The Advantages and Disadvantages of Selected Techniques.- Part II: Empirical Applications: Important Empirical Applications - A Review; Central-Bank Council Meetings and Money Market Uncertainty; Central-Bank Council Meetings - Event Studies; Summary and Conclusions.