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Dynamic analysis of implied risk neutral density

Abderrahmen Aloulou and Younes Boujelbene

International Journal of Monetary Economics and Finance, 2019, vol. 12, issue 1, 39-58

Abstract: The risk neutral densities is an important tool for analysing the dynamics of financial markets and traders' attitudes and reactions to already experienced shocks by financial markets as well as the potential ones. In this paper, we present a new method for extraction information content from options prices. By eliminating bias caused by daily variation of contract maturity through a completely non parametric technique based on Kernel regression, we allow to compare evolution of risk neutral density, and to extract from time continuous indicators that detect evolution of traders attitudes, risk perception and belief homogeneity. This method is useful to develop trading strategies and monetary policies.

Keywords: options prices information content; risk neutral density; contract maturity series; Kernel. (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:ids:ijmefi:v:12:y:2019:i:1:p:39-58