Summary and Conclusions
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In this book we first reviewed techniques to extract implied probabilities from option prices and presented some empirical applications. We discussed how implied probabilities can be interpreted as representing the expectations of a risk-neutral agent with respect to the underlying’s price in the future. We then explained various methods used for the presentation and interpretation of risk-neutral probabilities. In Chapter 5, we reviewed in some detail the most important techniques for extracting implied probabilities from option prices that in turn were compared with respect to robustness and issues related to their implementation in Chapter 6.
KeywordsMonetary Policy Central Bank Option Price Market Participant Federal Fund Rate
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