Measuring expectations in options markets: an application to the S&P500 index

Abel Rodr�guez and Enrique ter Horst

Quantitative Finance, 2011, vol. 11, issue 9, 1393-1405

Abstract: Extracting market expectations has always been an important issue when making national policies and investment decisions in financial markets. In options markets, the most popular way has been to extract implied volatilities to assess the future variability of the underlying asset with the use of the Black--Scholes formula. In this manuscript, we propose a novel way to extract the whole time varying distribution of the market implied asset price from option prices. We use a Bayesian non-parametric method that makes use of the Sethuraman representation for Dirichlet processes to take into account the evolution of distributions in time. As an illustration, we present an analysis of options on the S&P500 index.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/14697680903193397 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:11:y:2011:i:9:p:1393-1405

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697680903193397

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().