We examine the risk neutral probability density (RND) for the S&P 500 extracted from real-time bid and ask quotes for index options, under extreme market stress during the fall of 2008. The RND provides exceptional detail about investors' expectations as intraday volatility increased to a level...

The central concern of this paper is the provision in a time series moment condition framework of practical recommendations of confidence regions for parameters whose coverage probabilities are robust to the strength or weakness of identification. To this end we develop Pearson-type test...

It is generally held that derivative prices do not contain useful predictive information, that is, information relating to the distribution of future financial variables under the real-world measure. This is because the market’s implicit forecast of the future becomes entangled with market...

We estimate time series of option implied Probabilities of Default (PoDs) for 19 major US financial institutions from 2002 to 2012. These PoDs are estimated as mass points of entropy based risk neutral densities and subsequently corrected for maturity dependence. The obtained time series are...

This paper uses over-the-counter currency options data to investigate market expectations on Turkish Lira-U.S. Dollar exchange rate. We extract option implied density functions to examine the evolution of market sentiment over the possible values of future exhange rates. Uncertainty is well...

This paper uses over-the-counter currency options data to investigate market expectations on Turkish Lira-U.S. Dollar exchange rate. We extract option implied density functions to examine the evolution of market sentiment over the possible values of future exchange rates. Uncertainty is well...

In this study we compare the quality and information content of risk neutral densities obtained by various methods. We consider a non-structural method, based on a mixture of log-normal densities, and the semi-nonparametric ones, based on an Hermite approximation of Abken, Madan, Milne, and...

The aim of this paper is to compare various methods which extract a Risk Neutral Density (RND) out of PIBOR, as well as of Notional interest rate futures options, and to investigate how traders react to a political event. We first focus on five dates surrounding the 1997 snap election and...