The Probability Density Function of Interest Rates Implied in the Price of Options

The paper contributes to the stochastic volatility literature by developing simulation schemes for the conditional distributions of the price of long term bonds and their variability based on non-standard distributional assumptions and volatility concepts; it illustrates the potential value of the information contained in the prices of options on long and short term lira interest rate futures for the conduct of monetary policy in Italy, at times when significant regime shifts have occured.

[1]  Giuseppe Grande Properties of the Monetary Conditions Index , 1997 .

[2]  Alan G. White,et al.  The Pricing of Options on Assets with Stochastic Volatilities , 1987 .

[3]  R. Engle,et al.  Implied ARCH models from options prices , 1992 .

[4]  F. Jamshidian An Exact Bond Option Formula , 1989 .

[5]  J. Hull Options, futures, and other derivative securities , 1989 .

[6]  Lars E. O. Svensson,et al.  New Techniques to Extract Market Expectations from Financial Instrument , 1996 .

[7]  Francesco Drudi,et al.  Sensitivity of VAR Measures to Different Risk Models , 1997 .

[8]  Bent E. Sørensen,et al.  International Risk Sharing and European Monetary Unification , 1998 .

[9]  Christopher G. Lamoureux,et al.  Forecasting Stock-Return Variance: Toward an Understanding of Stochastic Implied Volatilities , 1993 .

[10]  Alessandro Prati,et al.  Signaling Fiscal Regime Sustainability , 1999 .

[11]  P. Samuelson Wherein Do the European and American Models Differ , 1997 .

[12]  Allan M. Malz Using option prices to estimate realignment probabilities in the European Monetary System: the case of sterling-mark , 1996 .

[13]  Fabio Panetta,et al.  Style, fees and performance of Italian equity funds , 1998 .

[14]  William R. Melick,et al.  Recovering an Asset's Implied PDF from Option Prices: An Application to Crude Oil during the Gulf Crisis , 1997, Journal of Financial and Quantitative Analysis.

[15]  DermanEmanuel,et al.  The Local Volatility Surface: Unlocking the Information in Index Option Prices , 1996 .

[16]  G. Ferri,et al.  Finance, Human Capital and Infrastructure: An Empirical Investigation of Post-War Italian Growth , 1997 .

[17]  F. Longstaff The valuation of options on yields , 1990 .

[18]  Filippo Altissimo,et al.  Nonlinear VAR: Some Theory and an Application to US GNP and Unemployment , 1998 .

[19]  R. C. Merton,et al.  Option pricing when underlying stock returns are discontinuous , 1976 .

[20]  A. F. Pozzolo,et al.  The Behaviour of the Dollar and Exchange Rates in Europe: Empirical Evidence and Possible Explanations , 1998 .

[21]  Lars E. O. Svensson,et al.  New Techniques to Extract Market Expectations from Financial Instruments , 1997 .

[22]  J. Duan THE GARCH OPTION PRICING MODEL , 1995 .

[23]  Jeff Fleming,et al.  Implied volatility functions: empirical tests , 1996, IEEE/IAFE 1996 Conference on Computational Intelligence for Financial Engineering (CIFEr).

[24]  Silvia Fabiani Risultati e problemi di un quinquennio di politica dei redditi : una prima valutazione quantitativa , 1998 .

[25]  G. Corbisiero La problematica della crescente fragilità nella "ipotesi di instabilità finanziaria" da una prospettiva kaleckiana , 1998 .

[26]  F. Black,et al.  The Pricing of Options and Corporate Liabilities , 1973, Journal of Political Economy.

[27]  A. Melé,et al.  Weak convergence and distributional assumptions for a general class of nonliner arch models , 1997 .

[28]  M. Subrahmanyam,et al.  The analysis and valuation of interest rate options , 1993 .

[29]  P. Bossaerts,et al.  Local parametric analysis of hedging in discrete time , 1997 .

[30]  S. Heston A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options , 1993 .

[31]  Daniel B. Nelson ARCH models as diffusion approximations , 1990 .

[32]  Douglas T. Breeden,et al.  Prices of State-Contingent Claims Implicit in Option Prices , 1978 .

[33]  Ignazio Angeloni,et al.  Long-Term Interest Rate Convergence in Europe and the Probability of EMU , 1997 .

[34]  J. Campa,et al.  Testing the Expectations Hypothesis on the Term Structure of Volatilities in Foreign Exchange Options , 1995 .

[35]  C. Granger,et al.  A long memory property of stock market returns and a new model , 1993 .

[36]  Silvia Fabiani,et al.  Education, Infrastructure, Geography and Growth: An Empirical Analysis of the Development of Italian Provinces , 1997 .

[37]  R. D. Bonis,et al.  Da che cosa dipendono i tassi di interesse sui prestiti nelle province , 1997 .

[38]  Eduardo S. Schwartz,et al.  Interest Rate Volatility and the Term Structure: A Two-Factor General Equilibrium Model , 1992 .

[39]  Alessandra Mori,et al.  Investimenti diretti all'estero e commercio : complementi o sostituti? , 1998 .

[40]  F. Black,et al.  The Valuation of Option Contracts and a Test of Market Efficiency , 1972 .

[41]  Paola Caselli,et al.  La politica fiscale nei paesi dell'Unione europea negli anni novanta , 1998 .