Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/23158
Authors: 
Haas, Markus
Mittnik, Stefan
Mizrach, Bruce
Year of Publication: 
2004
Series/Report no.: 
Working papers / Rutgers University, Department of Economics 2004,24
Abstract: 
Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulated moments estimator for option volatilities described in Mizrach (2002); the second is a new approach developed by Haas, Mittnik and Paolella (2004a) for fat-tailed conditionally heteroskedastic time series. We find, in an application to the ERM crises of 1992-93, that both the options and the underlying exchange rates provide useful information for policy makers.
Subjects: 
options
implied probability densities
GARCH
fat-tails
European Monetary System
JEL: 
G12
G14
F31
Document Type: 
Working Paper

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