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E-book
Author Krichene, Noureddine, author

Title Deriving market expectations for the euro-dollar exchange rate from option prices / prepared by Noureddine Krichene
Published [Washington D.C.] : International Monetary Fund, ©2004

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Description 1 online resource (24 pages)
Series IMF working paper, 2227-8885 ; WP/04/196
IMF working paper ; WP/04/196.
Contents ""Contents""; ""I. INTRODUCTION""; ""II. THE INVERSE PROBLEM IN OPTION PRICING THEORY""; ""A. Black-Scholes Implied Volatility: Market Quotations and the Smile Effect""; ""B. The Implied Tree Method""; ""C. The Forward Approach to the Inverse Problem: The Fokker-Planck Equation""; ""III. RECOVERING THE DOLLAR- EURO IMPLIED VOLATILITIES AND RND""; ""A. Empirical Estimates of the Smile""; ""B. Estimation of the Implied RND""; ""IV. CONCLUSION""; ""ELEMENTS OF OPTION PRICING THEORY""; ""REFERENCES""
Summary 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
Notes "October 2004."
Bibliography Includes bibliographical references
Notes At head of title: African Department
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL
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Print version record
Subject Foreign exchange rates -- European Union countries
Stock options -- Prices
Euro.
Dollar, American.
Foreign exchange rates.
Assets -- Prices -- Econometric models
Economic forecasting.
Dollar, American
Economic forecasting
Euro
Foreign exchange rates
Stock options -- Prices
European Union countries
Form Electronic book
Author International Monetary Fund. African Department, issuing body.
ISBN 1282051083
9781282051089
9781451905359
1451905351
9781451859997
1451859996
ISSN 2227-8885