Researchers from Moscow State University have proposed a method that allows the price data of currency options contracts to be used to predict prices of underlying assets. The mathematicians shared their findings at the All-Russian Conference “Lomonosov Readings-2023”.
An option allows its holder to buy and sell an underlying asset (interest rates, stocks, stock indices, commodities such as oil or precious metals) at a fixed price at some point in the future. Often, the actual market prices of options differ from the theoretical ones: market participants have their own idea of the value of an asset.
Options prices are determined, among other things, by its volatility, which is a measure of the volatility of the underlying asset. From the market value of an option, the implied volatility expected by market participants can be deduced. In turn, on its basis, you can calculate the probability of how much this or that asset will cost.
Experts from the Moscow State University Faculty of Computational Mathematics and Cybernetics (CMC) found a way to improve this calculation method, which made it possible to use it on real data. Statistical tests of the method on historical data yielded positive results and showed that such an approach could indeed be used to predict the distribution of future prices.
After analyzing the cost of stock options in 2007 and 2008, experts found the prerequisites for predicting the 2008 global economic crisis. One of the researchers, Petr Arbuzov, said that perhaps the proposed approach will make it possible to predict future financial crises.
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