Arbeitspapier
The economics of options-implied inflation probability density functions
Recently a market in options based on CPI inflation (inflation caps and floors) has emerged in the US. This paper uses quotes on these derivatives to construct probability densities for inflation. We study how these pdfs respond to news announcements, and find that the implied odds of deflation are sensitive to certain macroeconomic news releases. We compare the option-implied probability densities with those obtained by time series methods, and use this information to construct empirical pricing kernels. The options-implied densities assign considerably more mass to extreme inflation outcomes (either deflation or high inflation) than do their time series counterparts. This yields a U-shaped empirical pricing kernel, with investors having high marginal utility in states of the world characterized by either deflation or high inflation.
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Paper ; No. 600
- Klassifikation
-
Wirtschaft
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Price Level; Inflation; Deflation
Financial Markets and the Macroeconomy
Asset Pricing; Trading Volume; Bond Interest Rates
- Thema
-
Inflation
Floors and Caps
Derivatives
Physical measure
Risk-Neutral Measure
Finanzmarkt
Optionsgeschäft
Derivat
Inflation
Berechnung
USA
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Kitsul, Yuriy
Wright, Jonathan H.
- Ereignis
-
Veröffentlichung
- (wer)
-
The Johns Hopkins University, Department of Economics
- (wo)
-
Baltimore, MD
- (wann)
-
2012
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Kitsul, Yuriy
- Wright, Jonathan H.
- The Johns Hopkins University, Department of Economics
Entstanden
- 2012
Ähnliche Objekte (12)
A quantitative mirror on the Euribor market using implied probability density functions
Estimating and analysing currency options implied risk-neutral density functions for the largest new EU member states
Estimating and analysing currency options implied risk neutral density functions for the largest new EU member states
Estimation and regularization of probability density functions in image processing
Estimation and regularization of probability density functions in image processing
Computing f‐divergences and distances of high‐dimensional probability density functions
A Study of Implied Risk-Neutral Density Functions in the Norwegian Option Market
Extracting implicit density functions from short term interest rate options
Extracting implicit density functions from short term interest rate options
Estimation of nonparametric probability density functions with applications to automatic speech recognition
Modelling the implied probability of stock market movements
Updating the option implied probability of default methodology
A quantitative mirror on the Euribor market using implied probability density functions
Estimating and analysing currency options implied risk-neutral density functions for the largest new EU member states
Estimating and analysing currency options implied risk neutral density functions for the largest new EU member states
Estimation and regularization of probability density functions in image processing
Estimation and regularization of probability density functions in image processing
Computing f‐divergences and distances of high‐dimensional probability density functions
A Study of Implied Risk-Neutral Density Functions in the Norwegian Option Market
Extracting implicit density functions from short term interest rate options
Extracting implicit density functions from short term interest rate options
Estimation of nonparametric probability density functions with applications to automatic speech recognition
Modelling the implied probability of stock market movements
Updating the option implied probability of default methodology
A quantitative mirror on the Euribor market using implied probability density functions
Estimating and analysing currency options implied risk-neutral density functions for the largest new EU member states
Estimating and analysing currency options implied risk neutral density functions for the largest new EU member states
Estimation and regularization of probability density functions in image processing
Estimation and regularization of probability density functions in image processing
Computing f‐divergences and distances of high‐dimensional probability density functions
A Study of Implied Risk-Neutral Density Functions in the Norwegian Option Market
Extracting implicit density functions from short term interest rate options
Extracting implicit density functions from short term interest rate options
Estimation of nonparametric probability density functions with applications to automatic speech recognition
Modelling the implied probability of stock market movements