The Information Content of Prices in Derivative Security Markets

Author/Editor:

Louis O. Scott

Publication Date:

December 1, 1991

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.

Series:

Working Paper No. 91/132

Subject:

Notes:

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

English

Publication Date:

December 1, 1991

ISBN/ISSN:

9781451932553/1018-5941

Stock No:

WPIEA1321991

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

42

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