Naslov
Moments Extractin from Implied Probability Distribution: Nonstructural Approach

Autori
Poklepović, Tea ; Aljinović, Zdravka ; Rozga, Ante

Vrsta, podvrsta i kategorija rada
Radovi u zbornicima skupova, cjeloviti rad (in extenso), znanstveni

Izvornik
Proceedings of the 02nd International Conference on Business Management and Economics - 02nd ICBME 2016 / Global Academic Research Institute Publication Department - Colombo : Global Academic Research Institute Publication Department, 2016, 1-23

ISBN
978-955-7766-00-3

Skup
02nd International Conference on Business Management and Economics - 02nd ICBME 2016

Mjesto i datum
Colombo, Šri Lanka, 19.02.2016. - 20.02.2016

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
market expectation; risk-neutral density; mixture of log-normals; Edgeworth expansions; Shimko’s model; maturity horizon; DAX index options

Sažetak
Quantifying economic uncertainty, i.e. an environment in which little or nothing is known about the future state of the economy, poses a challenge to both market participants and public authorities since it is not observable, but rather latent variable. In spite of this, it is possible to measure it indirectly through standard deviation of stock returns and implied volatility obtained from option prices. However, option prices may reveal considerable information beyond implied volatility, i.e. a set of option prices with the same maturity but with different exercise prices can be used to extract the entire implied probability distribution of the underlying asset at the expiration date. Implied probability distribution is risk-neutral according to the absence of arbitrage, i.e. the prices of options are not affected by degree of risk aversion among investors. The models for estimating risk-neutral density (RND) can be divided into two main categories: structural and nonstructural. The purpose of this paper is to extract market expectations from option prices and to investigate which of the proposed nonstructural models for estimating RNDs give the best fit. Namely, mixture of two log- normals, Edgeworth expansions and Shimko’s model, i.e. representatives of parametric, semiparametric and nonparametric approaches respectively, will be compared. The model that fits sample data better than others is used to describe different characteristics (moments) of the ex ante probability distribution. The sample covers one-year data for DAX index options from July, 15th 2014 to July, 15th 2015. The results are compared through models and different maturity horizons.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA