Reading PIBOR futures options smiles: The 1997 snap election

Journal of Banking and Finance

Volumn 25, Issue 11, 2001, Pages 1957-1987

  Coutant, Sophie ^a   Jondeau, Eric ^b   Rockinger, Michael ^b  

^a DGEI DEER   (France)

^b HEC PARIS   (France)

Author keywords

C52; E43; E52; Election; G13; G14; Implied volatility; Interest rate; Risk neutral density

Indexed keywords

EID: 0042403615     PISSN: 03784266     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0378-4266(00)00161-8     Document Type: Article

References (55)

1. Abken, P., Madan, D.B., Ramamurtie, S., 1996. Estimation of risk-neutral and statistical densities by Hermite polynomial approximation: With an application to Eurodollar Futures Options. Mimeo. Federal Reserve Bank of Atlanta.
2. Aït-Sahalia Y., Lo A.W. Nonparametric estimation of state-price densities implicit in financial asset prices. Journal of Finance. 53:1998;499-547.
3. Agmon N., Alhassid Y., Levine R.D. An algorithm for finding the distribution of maximal entropy. Journal of Computational Physics. 30:1979;250-259.
4. Bahra, B., 1996. Probability distributions of future asset prices implied by option prices. Bank of England Quarterly Bulletin, August 1996, 299-311.
5. Barone-Adesi G., Whaley R.E. Efficient analytic approximation of American option values. Journal of Finance. 42:1987;301-320.
6. Bates D.S. The crash of '87: Was it expected? The evidence from options markets. Journal of Finance. 46:1991;1009-1044.
7. Bates D.S. Dollar jump fears, 1984:1992, Distributional abnormalities implicit in currency futures options. Journal of International Money and Finance. 15:1996a;65-93.
8. Bates D.S. Jumps and stochastic volatility: Exchange rate processes implicit in Deutsche Mark options. Review of Financial Studies. 9:1996b;69-107.
9. Bates D.S. Post-'87 crash fears in S&P 500 futures options. Journal of Econometrics. 94:2000;181-238.
10. Black F. The pricing of commodity contracts. Journal of Financial Economics. 3:1976;167-179.
11. Black F., Scholes M. The pricing of options and corporate liabilities. Journal of Political Economy. 81:1973;637-654.
12. Brace A., Ga̧tarek D., Musiela M. The market model of interest rate dynamics. Mathematical Finance. 7:1997;127-155.
13. Breeden D., Litzenberger R. Prices of state-contingent claims implicit in option prices. Journal of Business. 51:1978;621-651.
14. Brennan M.J., Schwartz E.S. An equilibrium model of bond pricing and a test of market efficiency. Journal of Financial and Quantitative Analysis. 17:1982;301-330.
15. Buchen P., Kelly M. The maximum entropy distribution of an asset inferred from option prices. Journal of Financial and Quantitative Analysis. 31:1996;143-159.
16. Butler, C., Davies, H., 1998. Assessing market views on monetary policy: The use of implied risk neutral probability distributions. Mimeo. Bank of England, London.
17. Campa J.C., Chang P.H.K., Reider R.L. ERM bandwidths for EMU and after: Evidence from foreign exchange options. Economic Policy. 24:1997;55-87.
18. Campa J.C., Chang P.H.K., Reider R.L. Implied exchange rate distributions: Evidence from OTC option market. Journal of International Money and Finance. 17:1998;117-160.
19. Chaudhary M., Wei J. Upper bounds for American Futures options: A note. Journal of Futures Markets. 14:1994;111-116.
20. Chen R.R., Scott L. Pricing interest rate futures options with futures-style margining. Journal of Futures Markets. 13:1993;15-22.
21. Cox J.C., Ingersoll J.I., Ross S.A. A theory of the term structure of interest rates. Econometrica. 53:1985;385-407.
22. Derman E., Kani I. Riding on a smile. RISK. 7:1994;32-39.
23. Duffie D. Security Markets: Stochastic Models. 1988;Academic Press, Boston.
24. Dumas B., Fleming J., Whaley R.E. Implied volatility functions: Empirical tests. Journal of Finance. 53:1998;2059-2106.
25. Dupire B. Pricing with a Smile. RISK. 7:1994;18-20.
26. El Karoui, N., Rochet, J.C., 1989. A pricing formula for options on coupon bonds. SEEDS Working Paper, 72.
27. Gemmill G. Policy risk and market efficiency: Tests based in British stock and options markets in the 1987 election. Journal of Banking and Finance. 16:1992;211-231.
28. Golan A., Judge G., Miller D. Maximum Entropy Econometrics: Robust Estimation with Limited Data. 1996;Wiley, New York.
29. Harrison J.M., Kreps D. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory. 20:1979;381-408.
30. Harrison J.M., Pliska S.R. Martingales and stochastic integrals in the theory of continuous trading. Stochastic Processes and Their Applications. 11:1981;215-260.
31. Heath D., Jarrow R., Morton A. Bond pricing and the term structure of interest rates: A new methodology for contingent claims valuation. Econometrica. 60:1992;77-105.
32. Hull J., White A. Pricing interest-rate derivatives securities. Review of Financial Studies. 3:1990;573-592.
33. Jackwerth, J.C., 1999. Option implied risk-neutral distributions and implied binomial trees: A literature review. Working paper. London Business School.
34. Jackwerth J.C., Rubinstein M. Recovering probability distributions from option prices. Journal of Finance. 51:1996;1611-1631.
35. Jaynes E.T. Information theory and statistical mechanics. Physics Review. 106:1957;620-630.
36. Jaynes, E.T., 1982. On the rationale of maximum-entropy methods. Proceedings of the IEEE 70, 939-952.
37. Jondeau E., Rockinger M. Reading the smile: The message conveyed by methods which infer risk neutral densities. Journal of International Money and Finance. 19:2000;885-915.
38. Jondeau E., Rockinger M. Gram-Charlier densities. Journal of Economic Dynamics and Control. 25(10):2001;1457-1483.
39. Longstaff F.A., Schwartz E.S. Interest rate volatility and the term structure: A two-factor general equilibrium model. Journal of Finance. 47:1992;1259-1282.
40. Madan D.B., Milne F. Contingent claims valued and hedged by pricing and investing in a basis. Mathematical Finance. 4:1994;223-245.
41. Malz A.M. Using option prices to estimate realignment probabilities in the European monetary system. Journal of International Money and Finance. 15:1997;717-748.
42. Malz, A.M., 1996. Options-based estimates of the probability distribution of exchange rates and currency excess returns. Mimeo. Federal Reserve Bank of New York.
43. Melick W.R., Thomas C.P. Recovering an asset's implied PDF from options prices: An application to crude oil during Gulf crisis. Journal of Financial and Quantitative Analysis. 32:1997;91-116.
44. Merton R. Theory of rational option pricing. Bell Journal of Economics and Management Science. 4:1973;141-183.
45. Musiela M. General framework for pricing derivative securities. Stochastic Processes and their Applications. 55:1995;227-251.
46. Musiela M., Rutkowski M. Martingale Methods in Financial Modelling. 1997;Springer, New York.
47. Neuhaus, H., 1995. The information content of derivatives for monetary policy: Implied volatilities and probabilities. D.P. 3, Economic Research Group of the Deutsche Bundesbank.
48. Rubinstein M. Implied binomial trees. Journal of Finance. 49:1994;771-818.
49. Sandmann, K., Sondermann, D., 1993. On the Stability of Lognormal Interest Rate Models. University of Bonn (preprint).
50. Shannon C.E. The mathematical theory of communication. Bell Systems Technical Journal. 27:1948;379-423.
51. Shimko D. Bounds of probability. RISK. 6:1993;33-47.
52. Söderlind P., Svensson L.E.O. New techniques to extract market expectations from financial instruments. Journal of Monetary Economics. 40:1997;383-429.
53. Stein E., Stein J. Stock price distributions with stochastic volatility: An analytic approach. Review of Financial Studies. 4:1991;727-752.
54. Stutzer M. A simple nonparametric approach to derivative security valuation. Journal of Finance. 51:1996;1633-1652.
55. Vasicek O. An equilibrium characterization of the term structure. Journal of Financial Economics. 5:1977;177-188.