Description |
1 online resource (24 pages) |
Series |
IMF working paper, 2227-8885 ; WP/04/196 |
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IMF working paper ; WP/04/196.
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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 |
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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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digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL |
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Print version record |
Subject |
Foreign exchange rates -- European Union countries
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Stock options -- Prices
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Euro.
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Dollar, American.
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Foreign exchange rates.
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Assets -- Prices -- Econometric models
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Economic forecasting.
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Dollar, American
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Economic forecasting
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Euro
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Foreign exchange rates
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Stock options -- Prices
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European Union countries
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Form |
Electronic book
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Author |
International Monetary Fund. African Department, issuing body.
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ISBN |
1282051083 |
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9781282051089 |
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9781451905359 |
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1451905351 |
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9781451859997 |
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1451859996 |
ISSN |
2227-8885 |
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