Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 142:
New Techniques to Extract Market expectations from Financial Instruments

Paul Söderlind () and Lars E.O. Svensson ()

Abstract: This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates and inflation. More recently, these methods have been refined to rely on implied forward interewst rates, so as to extract expected future time-paths. Very recently, methods have been designed to extract not only the means but the whole (risk neutral) probability distribution from a set of option prices.

Keywords: Interest rates; exchange rates; inflation; options; forward rate curve; risk neutral distribution; (follow links to similar papers)

JEL-Codes: E43; E52; G13; (follow links to similar papers)

47 pages, December 1996

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This paper is published as:
Söderlind, Paul and Lars E.O. Svensson, (1997), 'New Techniques to Extract Market expectations from Financial Instruments', Journal of Monetary Economics, Vol. 40, pages 383-429

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