Modelling the implied probability of stock market movements

Arbeitspapier

In this paper we study risk-neutral densities (RNDs) for the German stock market. The use of option prices allows us to quantify the risk-neutral probabilities of various levels of the DAX index. For the period from December 1995 to November 2001, we implement the mixture of log-normals model and a volatility-smoothing method. We discuss the time series behaviour of the implied PDFs and we examine the relations between the moments and observable factors such as macroeconomic variables, the US stock markets and credit risk. We find that the risk-neutral densities exhibit pronounced negative skewness. Our second main observation is a significant spillover of volatility, as the implied volatility and kurtosis of the DAX RND are mostly driven by the volatility of US stock prices.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 212

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Model Construction and Estimation ; Contingent Pricing; Futures Pricing; option pricing ; International Financial Markets
• Thema: Option prices ; risk-neutral density ; spillover ; Volatility

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Glatzer, Ernst ; Scheicher, Martin
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2003

Weitere Informationen

• Handle: http://hdl.handle.net/10419/152646
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ