The Information Content of Prices in Derivative Security Markets

December 1, 1991

Preview Citation

Format: Chicago

Louis O. Scott The Information Content of Prices in Derivative Security Markets, (USA: International Monetary Fund, 1991) accessed October 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Prices in futures markets and option markets reflect expectations about future price movements in spot markets, but these prices can also be influenced by risk premia. Futures and forward prices are sometimes interpreted as market expectations for future spot prices, and option prices are used to calculate the market’s expectations for future volatility of spot prices. Do these prices accurately reflect market expectations? The purpose of this paper is to examine the information that is reflected in futures prices and option prices. The issue is examined by reviewing both the relevant analytical models and the empirical evidence.

Subject: Asset prices, Financial institutions, Futures, National accounts, Options, Prices, Return on investment, Stocks

Keywords: Asset prices, CIR price futures, Dividend yield, Forward price, Futures, Futures option, Futures price, Futures settlement price, Interest rate, Options, Return on investment, Risk premium, Spot market, Spot price, Stock index, Stocks, Term structure, Treasury bond futures, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/132
Stock No:

WPIEA1321991
ISBN:

9781451932553
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 39, No. 3, September 1992.

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