Risk-Neutral Densities and Catastrophe Events

  • In this research, we analyze the impact of catastrophe events on riskneutral densities which can be implied from European option markets. As catastrophe events we consider the destruction of the nuclear power plant at Fukushima and the downgrading of U.S. sovereign debt in 2011. In an event study, we analyze the impact on European blue chip index options traded at EUREX. We find that after a short adaption period, probability mass of especially risk-neutral density functions derived from long-term options is shifted toward the right side. Thus, very good states of the economy become more expensive indicating higher prices for deep out-ofthe- money options. This signifies that there has been speculation on a recovery of the German stock market after the shocks.

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Metadaten
Institutes:Fakultät Sozial- und Wirtschaftswissenschaften / Lehrstuhl für Betriebswirtschaftslehre, insbesondere Banking und Finanzcontrolling
Author:Michael Herold, Matthias Muck
Title of the journal / compilation (English):Derivative Securities Pricing and Modelling
Editor:Jonathan A. Batten, Niklas Wagner
Edition:1. ed.
Place of publication:Bingley [u.a.]
Publisher:Emerald
Year of publication:2012
Pages / Size:S. 185 - 207
Collections:Contemporary studies in economic and financial analysis ; 94
Year of first publication:2012
Keywords:Risk-neutral densities; derivatives
ISBN:978-1-78052-616-4
Document Type:Article in a Collection / Postprint
Language:English
Publishing Institution:Otto-Friedrich-Universität Bamberg
Release Date:2012/11/12
Licence (German):License LogoKeine Lizenz

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