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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

Permanent link to this Catalogue record:
publications.gc.ca/pub?id=9.571699&sl=0

Publication information
Department/Agency
  • Bank of Canada.
TitleThe information content of interest rate futures options / by Des Mc Manus.
Series title
  • Bank of Canada working paper 1701-9397 99-15
Publication typeMonograph - View Master Record
Language[English]
FormatDigital text
Electronic document
Other formatsPhysical text-[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.
Description55p.graphs, tables
ISSN1701-9397
Catalogue number
  • FB3-2/99-15E-PDF
Subject terms
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