Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152646
Authors: 
Glatzer, Ernst
Scheicher, Martin
Year of Publication: 
2003
Series/Report no.: 
ECB Working Paper 212
Abstract: 
In this paper we study risk-neutral densities (RNDs) for the German stock market. The use of option prices allows us to quantify the risk-neutral probabilities of various levels of the DAX index. For the period from December 1995 to November 2001, we implement the mixture of log-normals model and a volatility-smoothing method. We discuss the time series behaviour of the implied PDFs and we examine the relations between the moments and observable factors such as macroeconomic variables, the US stock markets and credit risk. We find that the risk-neutral densities exhibit pronounced negative skewness. Our second main observation is a significant spillover of volatility, as the implied volatility and kurtosis of the DAX RND are mostly driven by the volatility of US stock prices.
Subjects: 
Option prices
risk-neutral density
spillover
Volatility
JEL: 
C22
C51
G13
G15
Document Type: 
Working Paper

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