The economics of options-implied inflation probability density functions

• 成果类型: Article
• 署名作者: Kitsul, Yuriy; Wright, Jonathan H.
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; Johns Hopkins University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.08.013
• 发表日期: 2013
• 页码: 696-711
• 关键词: inflation; Floors and caps; derivatives; Forward martingale measure; Physical measure

摘要

Recently a market in options based on consumer price index inflation (inflation caps and floors) has emerged in the US. This paper uses quotes on these derivatives to construct probability densities for inflation. We study how these probability density functions respond to news announcements and find that the implied odds of deflation are sensitive to certain macroeconomic news releases. We also estimate empirical pricing kernels using these option prices along with time series models fitted to inflation. The options-implied densities assign considerably more mass to extreme inflation outcomes (either deflation or high inflation) than do their time series counterparts. This yields a U-shaped empirical pricing kernel, with investors having high marginal utility in states of the world characterized by either deflation or high inflation. (C) 2013 Elsevier B.V. All rights reserved.