An analysis of risk-neutral density’s moments for USD/BRL options with applications to trading
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2019-07-26
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Ruilova Terán, Juan Carlos
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Resumo
The present work proposes an application of a non-parametric methodology to extract the risk-neutral probability density function (RND) to USD/BRL options. This methodology consists in complementing the RND extracted from the implied volatility smile with tails drawn from a GEV (generalized extreme value) distribution. These non-parametrics riskneutral densities are compared to parametric distributions that are frequently mentioned in the literature - specifically, the mixture of log-normal densities (MLN) and the generalized beta of second kind (GB2) - through a study of their moments. The present work proposes a straightforward methodology to apply the estimated moments for trading of USD/BRL futures, finding strategies that produce greater returns relative to a simple buy and hold strategy.
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Risk-neutral density Implied volatility smile USD/BRL options Generalized extreme value Mixture of log-normal densities Generalized beta of second kind Futures trading Densidade neutra ao risco Volatilidade implícita Opções de USD/BRL Distribuição generalizada de valores extremos Mistura de densidades log-normais Distribuição generalizada beta de segundo tipo Trading de futuros