Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar
This research paper presents statistical comparisons between two methods that are commonly used to estimate option implied Risk-Neutral Densities (RND). These are: 1) mixture of lognormals (MXL); and, 2) volatility function technique (VFT). The former is a parametric method whilst the latter is a no...
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| Format: | Article |
| Language: | Spanish |
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Universidad Autónoma de Nuevo León
2008
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| Online Access: | https://ensayos.uanl.mx/index.php/ensayos/article/view/104 |
| _version_ | 1824325112163205120 |
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| author | Benavides Perales, Guillermo Mora Cuevas, Israel Felipe |
| author_facet | Benavides Perales, Guillermo Mora Cuevas, Israel Felipe |
| author_sort | Benavides Perales, Guillermo |
| collection | Artículos de Revistas UANL |
| description | This research paper presents statistical comparisons between two methods that are commonly used to estimate option implied Risk-Neutral Densities (RND). These are: 1) mixture of lognormals (MXL); and, 2) volatility function technique (VFT). The former is a parametric method whilst the latter is a non-parametric approach. The RNDs are extracted from over-thecounter European-style options on the Mexican Peso–US Dollar exchange rate. The non-parametric method was the superior one for out-of-sample evaluations. The implied mean, median and mode were, in general, statistically different between the competing approaches. It is recommended to apply the VFT instead of the MXL given that the former has superior accuracy and it can be estimated when there is a relatively short crosssection of option exercise price range. The results have implications for financial investors and policy makers given that they could use the information content in options to analyze market’s perceptions about the future expected variability of the financial asset under study. Clasificación JEL: C14, C52, F31, G13. |
| first_indexed | 2025-02-05T19:53:23Z |
| format | Article |
| id | ensayos-article-104 |
| institution | UANL |
| language | spa |
| last_indexed | 2025-02-05T19:53:23Z |
| physical | Ensayos Revista de Economía; Vol. 27 No. 1 (2008): MAY 2008; 33-52 Ensayos Revista de Economía; Vol. 27 Núm. 1 (2008): MAYO 2008; 33-52 2448-8402 1870-221X |
| publishDate | 2008 |
| publisher | Universidad Autónoma de Nuevo León |
| record_format | ojs |
| spelling | ensayos-article-1042023-12-11T11:08:32Z Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar Benavides Perales, Guillermo Mora Cuevas, Israel Felipe currency option implied volatility exchange rate parametric methods non-parametric methods risk-neutral densities. This research paper presents statistical comparisons between two methods that are commonly used to estimate option implied Risk-Neutral Densities (RND). These are: 1) mixture of lognormals (MXL); and, 2) volatility function technique (VFT). The former is a parametric method whilst the latter is a non-parametric approach. The RNDs are extracted from over-thecounter European-style options on the Mexican Peso–US Dollar exchange rate. The non-parametric method was the superior one for out-of-sample evaluations. The implied mean, median and mode were, in general, statistically different between the competing approaches. It is recommended to apply the VFT instead of the MXL given that the former has superior accuracy and it can be estimated when there is a relatively short crosssection of option exercise price range. The results have implications for financial investors and policy makers given that they could use the information content in options to analyze market’s perceptions about the future expected variability of the financial asset under study. Clasificación JEL: C14, C52, F31, G13. Universidad Autónoma de Nuevo León 2008-05-01 info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion Peer-reviewed Article Artículo arbitrado por pares application/pdf https://ensayos.uanl.mx/index.php/ensayos/article/view/104 10.29105/ensayos27.1-2 Ensayos Revista de Economía; Vol. 27 No. 1 (2008): MAY 2008; 33-52 Ensayos Revista de Economía; Vol. 27 Núm. 1 (2008): MAYO 2008; 33-52 2448-8402 1870-221X spa https://ensayos.uanl.mx/index.php/ensayos/article/view/104/89 Derechos de autor 2008 Guillermo Benavides Perales, Israel Felipe Mora Cuevas https://creativecommons.org/licenses/by/4.0 |
| spellingShingle | currency option implied volatility exchange rate parametric methods non-parametric methods risk-neutral densities. Benavides Perales, Guillermo Mora Cuevas, Israel Felipe Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar |
| thumbnail | https://rediab.uanl.mx/themes/sandal5/images/article.gif |
| title | Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar |
| title_full | Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar |
| title_fullStr | Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar |
| title_full_unstemmed | Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar |
| title_short | Parametric vs. non-parametric methods for estimating option implied risk-neutral densities: the case of the exchange rate Mexican peso – US dollar |
| title_sort | parametric vs non parametric methods for estimating option implied risk neutral densities the case of the exchange rate mexican peso us dollar |
| topic | currency option implied volatility exchange rate parametric methods non-parametric methods risk-neutral densities. |
| topic_facet | currency option implied volatility exchange rate parametric methods non-parametric methods risk-neutral densities. |
| url | https://ensayos.uanl.mx/index.php/ensayos/article/view/104 |
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