@techreport{Craig2005forecast,
abstract = {We estimate the process underlying the pricing of American options by
using higher-order lattices combined with a multigrid method. This paper
also tests whether the risk-neutral densities given from American options provide
a good forecasting tool. We use a nonparametric test of the densities
that is based on the inverse probability functions and is modified to account
for correlation across time between our random variables, which are uniform
under the null hypothesis. We find that the densities based on the Americanoption
markets for foreign exchange do quite well for the forecasting period
over which the options are thickly traded. Further, simple models that fit
the densities do about as well as more sophisticated models.
Keywords: Risk-neutral densities from option prices, American exchange
rate options, Evaluating Density Forecasts, Pentionominal tree, Density evaluation,
Overlapping data problem},
author = {Ben R. Craig and Joachim Keller},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {F47; C63; F31; C52; 330; Risk-neutral densities from option prices; American exchange rate options; Evaluating Density Forecasts; Pentionominal tree; Density evaluation; Devisenoptionsgesch\"{a}ft; Optionspreistheorie; Prognoseverfahren; Sch\"{a}tzung; USA},
language = {eng},
number = {2005,05},
title = {The forecast ability of risk-neutral densities of foreign exchange},
type = {Discussion Paper, Series 2: Banking and Financial Supervision},
url = {http://hdl.handle.net/10419/19738},
year = {2005}
}
