Summary statistics of option-implied probability density functions and their properties

Damien Lynch () and Nikolaos Panigirtzoglou ()
Additional contact information
Damien Lynch: Bank of England, Postal: Threadneedle Street London EC2R 8AH
Nikolaos Panigirtzoglou: Department of Economics, Queen Mary, University of London, Postal: Mile End Road, London E1 4NS

No 345, Bank of England working papers from Bank of England

Abstract: The statistics that summarise probability density functions(pdfs) implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. A time-series analysis of these statistics for equity index and interest rate markets provides some stylised facts about the behaviour of these elements of market expectations, their historical distribution, similarity and relative stability. Relationships between them and movements in underlying asset prices are considered. Cross-asset and cross-country comparisons and the information content of the implied pdfs for future macroeconomic and financial variables are also assessed.

Keywords: Options; implied probability density functions (pdfs); summary statistics; implied volatility; implied asymmetry; market expectations. (search for similar items in EconPapers)
JEL-codes: G13 G19 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2008-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... ensity-functions.pdf Full text (application/pdf)

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:boe:boeewp:0345

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().