The forecasting performance of German stock option densities

RePEc Short ID: pcr197
ORCID iD: 0000-0003-0667-1422

Craig, Ben R.; Glatzer, Ernst; Keller, Joachim G.; Scheicher, Martin

doi:10.26509/frbc-wp-200312

Working Paper

The forecasting performance of German stock option densities

Abstract: In this paper the authors estimate risk-neutral densities (RND) for the largest euro-area stock market (the index of which is the German DAX), reporting their statistical properties, and evaluating their forecasting performance. The authors have applied an innovative test procedure to a new, rich, and accurate data set. They have two main results. First, They have recorded strong negative skewness in the densities. Second, they find evidence for a significant difference between the actual density and the risk-neutral density, leading to the conclusion that market participants were surprised by the extent of both the rise and the fall of the DAX.

Keywords: Stock market - Germany; Stock options;

https://doi.org/10.26509/frbc-wp-200312