Title: Dynamic analysis of implied risk neutral density

Authors: Abderrahmen Aloulou; Younes Boujelbene

Addresses: Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia ' Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia

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.

Keywords: options prices information content; risk neutral density; contract maturity series; Kernel.

DOI: 10.1504/IJMEF.2019.098700

International Journal of Monetary Economics and Finance, 2019 Vol.12 No.1, pp.39 - 58

Accepted: 27 Dec 2018
Published online: 29 Mar 2019 *

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