Measuring Expectations in Options Markets
Author | : Abel Rodriguez |
Publisher | : |
Total Pages | : |
Release | : 2010 |
ISBN-10 | : OCLC:1290801892 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Measuring Expectations in Options Markets written by Abel Rodriguez and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Extracting market expectations has always been an important issue when making national policies and investment decisions in financial markets. In option markets, the most popular way has been to extract implied volatilities to assess the future variability of the underlying with the use of the Black amp; 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 nonparametric method that makes use of the Sethuraman representation for Dirichlet processes in order to take into account the evolution of probability distributions in time. As an illustration, we present the analysis of options on the Samp;P500 index.