Dynamic analysis of implied risk neutral density
by Abderrahmen Aloulou; Younes Boujelbene
International Journal of Monetary Economics and Finance (IJMEF), Vol. 12, No. 1, 2019

Abstract: The risk neutral densities is an important tool for analysing the dynamics of financial markets and traders' attitudes and reactions to already experienced shocks by financial markets as well as the potential ones. In this paper, we present a new method for extraction information content from options prices. By eliminating bias caused by daily variation of contract maturity through a completely non parametric technique based on Kernel regression, we allow to compare evolution of risk neutral density, and to extract from time continuous indicators that detect evolution of traders attitudes, risk perception and belief homogeneity. This method is useful to develop trading strategies and monetary policies.

Online publication date: Fri, 29-Mar-2019

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