Extracting Market Views from Derivative Prices

Andrew Weisman ()
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Andrew Weisman: Market Revealed Preference

Chapter Chapter 11 in Derivatives Applications in Asset Management, 2025, pp 193-217 from Springer

Abstract: Abstract This chapter describes methods for extracting actionable market insights from derivatives prices, emphasizing their role as a reflection of collective investor expectations. It provides practical frameworks for deriving market views on key economic variables, including interest rate forecasts using federal funds futures, equity market risk via risk-neutral densities, and currency correlations through implied volatility analysis. Through simple real-world examples, the chapter illustrates how derivatives markets reveal preferences, enabling investors to ground their forecasts in objective market data. The discussion includes theoretical foundations, calculation methods, and Python-based implementations for replicating these analyses. By bridging theory and application, the chapter demonstrates how derivatives prices can inform strategic investment decisions, enhance risk management, and refine economic predictions, highlighting their indispensable value in modern financial markets.

Keywords: Derivatives analysis; Market expectations; Risk-neutral density; Federal funds futures; Implied correlations; Economic forecasting (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-86354-7_11

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DOI: 10.1007/978-3-031-86354-7_11

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