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Market Expectations and Option Prices

Techniques and Applications

  • Book
  • © 2003

Overview

Authors:
  1. Martin Mandler

    1. Department of Economics and Business Administration, University of Gießen, Gießen, Germany

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Part of the book series: Contributions to Economics (CE)

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Table of contents (10 chapters)

  1. Front Matter

    Pages I-X
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  2. Introduction

    1. Introduction

      • Martin Mandler
      Pages 1-4

  3. Theoretical Foundations

    1. Front Matter

      Pages 5-5
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    2. Arbitrage Pricing and Risk-Neutral Probabilities

      • Martin Mandler
      Pages 7-22

    3. Survey of the Related Literature

      • Martin Mandler
      Pages 23-49

    4. Presenting and Interpreting Risk-Neutral Probabilities

      • Martin Mandler
      Pages 51-61

    5. Techniques for Extracting Risk-Neutral Probabilities from Option Prices

      • Martin Mandler
      Pages 63-107

    6. The Advantages and Disadvantages of Selected Techniques

      • Martin Mandler
      Pages 109-118

  4. Empirical Applications

    1. Front Matter

      Pages 119-119
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    2. Important Empirical Applications — A Review

      • Martin Mandler
      Pages 121-133

    3. Central-Bank Council Meetings and Money Market Uncertainty

      • Martin Mandler
      Pages 135-147

    4. Central-Bank Council Meetings — Event Studies

      • Martin Mandler
      Pages 149-197

    5. Summary and Conclusions

      • Martin Mandler
      Pages 199-201

  5. Back Matter

    Pages 203-227
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Keywords

About this book

This book is a slightly revised version of my doctoral dissertation which has been accepted by the Department of Economics and Business Administration of the Justus-Liebig-Universitat Giessen in July 2002. I am indebted to my advisor Prof. Dr. Volbert Alexander for encouraging and supporting my research. I am also grateful to the second member of the doctoral committee, Prof. Dr. Horst Rinne. Special thanks go to Dr. Ralf Ahrens for providing part of the data and to my colleague Carsten Lang, who spent much time reading the complete first draft. Wetzlar, January 2003 Martin Mandler Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Part I Theoretical Foundations 2 Arbitrage Pricing and Risk-Neutral Probabilities........ .. 7 2.1 Arbitrage Pricing in the Black/Scholes-Merton Model... . . .. . 7 2.2 The Equivalent Martingale Measure and Risk-Neutral Valuation ............................................... 11 2.3 Extracting Risk-Neutral Probabilities from Option Prices. . . .. 13 2.4 Summary............................................... 15 Appendix 2A: The Valuation Function in the Black/Scholes-Merton Model .................................................. 16 Appendix 2B: Some Further Details on the Replication Strategy ... 21 3 Survey of the Related Literature .......................... 23 3.1 The Information Content of Forward and Futures Prices. . . .. . 24 3.2 The Information Content of Implied Volatilities ............. 25 3.2.1 Implied Volatilities and the Risk-Neutral Probability Density .......................................... 27 3.2.2 The Term Structure of Implied Volatilities. . . . . . . .. . . 29 . 3.2.3 The Forecasting Information in Implied Volatilities. . .. 30 3.2.4 Implied Correlations as Forecasts of Future Correlations 43 VIII Contents 3.3 The Skewness Premium ..... . . . . . . . . . . . . . . . . . . .. . . 45 . . . . . . .

Authors and Affiliations

  • Department of Economics and Business Administration, University of Gießen, Gießen, Germany

    Martin Mandler

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