Extraction of market expectations from risk-neutral density
The purpose of this paper is to investigate which of the proposed parametric models for extracting risk-neutral density; among Black-Scholes Merton, mixture of two log-normals and generalized beta; give the best fit. The model that fits sample data better is used to describe different characteris...
| Main Authors: | , , |
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| Format: | Article |
| Language: | deu |
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Faculty of Economics University of Rijeka
2015-12-01
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| Series: | Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu |
| Subjects: | |
| Online Access: | http://www.efri.uniri.hr/sites/efri.uniri.hr/files/cr-collections/2/03-arneric-poklepovic-aljinovic-2015-2-1452518018.pdf |
| _version_ | 1818295814413352960 |
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| author | Josip Arnerić Zdravka Aljinović Tea Poklepović |
| author_facet | Josip Arnerić Zdravka Aljinović Tea Poklepović |
| author_sort | Josip Arnerić |
| collection | DOAJ |
| description | The purpose of this paper is to investigate which of the proposed parametric
models for extracting risk-neutral density; among Black-Scholes Merton, mixture
of two log-normals and generalized beta; give the best fit. The model that fits
sample data better is used to describe different characteristics (moments) of the ex
ante probability distribution. The empirical findings indicate that no matter which
parametric model is used, the best fit is always obtained for short maturity horizon,
but when comparing models in short-run, the mixture of two log-normals gives
statistically significant smaller MSE. According to the pair-wise comparison
results, the basic conclusion is that the mixture of two log-normals is superior to
the other parametric models and has proven to be very flexible in capturing
commonly observed characteristics of the underlying financial assets, such as
asymmetries and “fat-tails” in implied probability distribution. |
| first_indexed | 2024-12-13T03:53:37Z |
| format | Article |
| id | doaj.art-bbb293dce93c434cac3256ec78a5a83f |
| institution | Directory Open Access Journal |
| issn | 1331-8004 |
| language | deu |
| last_indexed | 2024-12-13T03:53:37Z |
| publishDate | 2015-12-01 |
| publisher | Faculty of Economics University of Rijeka |
| record_format | Article |
| series | Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu |
| spelling | doaj.art-bbb293dce93c434cac3256ec78a5a83f2022-12-22T00:00:40ZdeuFaculty of Economics University of RijekaZbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu1331-80042015-12-0133223525610.18045/zbefri.2015.2.235Extraction of market expectations from risk-neutral densityJosip Arnerić0Zdravka Aljinović1Tea Poklepović2Assistant Professor, University of Zagreb, Faculty of Economics and Business, CroatiaFull Professor, University of Split, Faculty of Economics, Cvite Fiskovića 5, Split,CroatiaPhD student, University of Split, Faculty of Economics, Cvite Fiskovića 5, 21000 Split, CroatiaThe purpose of this paper is to investigate which of the proposed parametric models for extracting risk-neutral density; among Black-Scholes Merton, mixture of two log-normals and generalized beta; give the best fit. The model that fits sample data better is used to describe different characteristics (moments) of the ex ante probability distribution. The empirical findings indicate that no matter which parametric model is used, the best fit is always obtained for short maturity horizon, but when comparing models in short-run, the mixture of two log-normals gives statistically significant smaller MSE. According to the pair-wise comparison results, the basic conclusion is that the mixture of two log-normals is superior to the other parametric models and has proven to be very flexible in capturing commonly observed characteristics of the underlying financial assets, such as asymmetries and “fat-tails” in implied probability distribution.http://www.efri.uniri.hr/sites/efri.uniri.hr/files/cr-collections/2/03-arneric-poklepovic-aljinovic-2015-2-1452518018.pdfmarket expectationrisk-neutral densitymixture of log-normals |
| spellingShingle | Josip Arnerić Zdravka Aljinović Tea Poklepović Extraction of market expectations from risk-neutral density Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu market expectation risk-neutral density mixture of log-normals |
| title | Extraction of market expectations from risk-neutral density |
| title_full | Extraction of market expectations from risk-neutral density |
| title_fullStr | Extraction of market expectations from risk-neutral density |
| title_full_unstemmed | Extraction of market expectations from risk-neutral density |
| title_short | Extraction of market expectations from risk-neutral density |
| title_sort | extraction of market expectations from risk neutral density |
| topic | market expectation risk-neutral density mixture of log-normals |
| url | http://www.efri.uniri.hr/sites/efri.uniri.hr/files/cr-collections/2/03-arneric-poklepovic-aljinovic-2015-2-1452518018.pdf |
| work_keys_str_mv | AT josiparneric extractionofmarketexpectationsfromriskneutraldensity AT zdravkaaljinovic extractionofmarketexpectationsfromriskneutraldensity AT teapoklepovic extractionofmarketexpectationsfromriskneutraldensity |