The information content of interest rate futures options / by Des Mc Manus. : FB3-2/99-15E-PDF

Options prices are being increasingly employed to extract market expectations and views about monetary policy. In this paper, eurodollar options are monitored to examine the evolution of market sentiment over the possible future values of eurodollar rates. Risk-neutral probability functions are employed to synopsize the information contained in the prices of euro/dollar futures options. Several common methods of estimating risk-neutral probability density functions are examined. A method based on a mixture of lognormals density is found to rank first and a method based on a Hermite polynomial approximation is found to rank second. Several standard summary statistics are also examined, namely volatility, skewness, and kurtosis. The volatility measure is fairly robust across methods, while the skewness and kurtosis measure are model-sensitive. As an example, the days surrounding the September 1998 Federal Open Market Committee are examined.--Abstract

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Publication information
Department/Agency Bank of Canada.
Title The information content of interest rate futures options / by Des Mc Manus.
Series title Bank of Canada working paper1701-939799-15
Publication type Series - View Master Record
Language [English]
Format Electronic
Electronic document
Other formats Paper-[English]
Note(s) "Options prices are being increasingly employed to extract market expectations and views about monetary policy. In this paper, eurodollar options are monitored to examine the evolution of market sentiment over the possible future values of eurodollar rates. Risk-neutral probability functions are employed to synopsize the information contained in the prices of euro/dollar futures options. Several common methods of estimating risk-neutral probability density functions are examined. A method based on a mixture of lognormals density is found to rank first and a method based on a Hermite polynomial approximation is found to rank second. Several standard summary statistics are also examined, namely volatility, skewness, and kurtosis. The volatility measure is fairly robust across methods, while the skewness and kurtosis measure are model-sensitive. As an example, the days surrounding the September 1998 Federal Open Market Committee are examined."--Abstract.
The catalogue number (FB3-2/99-15E), ISBN (0-662-28179-9), and ISSN (1192-5434) for the print edition have been incorrectly copied in this electronic publication.
Bibliography.
Résumé en français.
Publishing information Ottawa - Ontario : Bank of Canada September 1999.
Description 55p.graphs, tables
ISSN 1701-9397
Catalogue number
  • FB3-2/99-15E-PDF
Subject terms Interest rates
Markets
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