Important Empirical Applications — A Review
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In this chapter we review the most important applications of techniques to extract market expectations from option prices. First, some studies on market expectations with regard to exchange rates will be discussed. Specifically, we shall concentrate on a number of studies focussing on the credibility of fixed-exchange-rate regimes. We shall then review empirical applications with regard to market expectations about future interest rates and stock indices. Finally, we shall discuss the results of applications that provide some insight into market participant’s risk preferences by exploiting the relationship between the risk-neutral and the true conditional density.
KeywordsExchange Rate Risk Aversion Option Price Implied Volatility Absolute Risk Aversion
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