Estimando a Densidade da Taxa de Câmbio Usando Modelos Paramétricos: o Caso do Brasil

There is a widespread belief that inflation-linked bonds are a direct source of information about inflation expectations. In this paper we address this issue by analyzing the relationship between break-even inflation (the difference between nominal and real yields) and future inflation. The dataset is extracted from Brazilian Treasury bonds covering the period from April 2005 to April 2011. We find that break-even inflation is an unbiased forecast only of the 3-month and 6-month ahead inflation. For medium horizons (12 and 18 months), break-even inflation has weak explanatory power of future inflation. Over long horizons (24 and 30 months), we report a significant, but counterintuitive, negative relationship between the break-even and realized inflation rates. Há uma crença generalizada de que títulos indexados a inflação são uma fonte de informação sobre a inflação futura. Neste artigo, nós estudamos essa questão analisando a relação entre a break-even inflation (diferença entre as taxas nominai e reais) e a inflação futura. A base de dados é extraída de títulos do tesouro brasileiro cobrindo o período de

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Do inflation-linked bonds contain information about future inflation?

Vicente

Guillén

2013

Rev. Bras. Econ.

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Eatimating risk aversion, Risk-Neutral and Real-World Densities using Brasilian Real currency options

Fajardo¹,

Ornelas²,

Farias³

2012

Econ. Apl.

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This paper uses the Liu et al. (2007) approach to estimate the optionimplied Risk-Neutral Densities (RND), real-world density (RWD), and relative risk aversion from the Brazilian Real/US Dollar exchange rate distribution. Our empirical application uses a sample of exchange-traded Brazilian Real currency options from 1999 to 2011. Our estimated value of the relative risk aversion is around 2.7, which is in line with other articles for the Brazilian Economy. Our out-of-sample results showed that the RND has some ability to forecast the Brazilian Real exchange rate, but when we incorporate the risk aversion, the out-of-sample performance improves substantially.

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Estimating Relative Risk Aversion, Risk-Neutral and Real-World Densities Using Brazilian Real Currency Options

2011

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Building Risk-Neutral Densities (RND) from options data can provide market-implied expectations about the future behavior of a financial variable. And market expectations on financial variables may influence macroeconomic policy decisions. It can be useful also for corporate and financial institutions decision making. This paper uses the Liu et all (2007) approach to estimate the option-implied Risk-neutral densities from the Brazilian Real/US Dollar exchange rate distribution. We then compare the RND with actual exchange rates, on a monthly basis, in order to estimate the relative risk-aversion of investors and also obtain a Real-world density for the exchange rate. We are the first to calculate relative risk-aversion and the option-implied Real World Density for an emerging market currency. Our empirical application uses a sample of Brazilian Real/US Dollar options traded at BM&F-Bovespa from 1999 to 2011. The RND is estimated using a Mixture of Two Log-Normals distribution and then the real-world density is obtained by means of the Liu et al. (2007) parametric risktransformations. The relative risk aversion is calculated for the full sample. Our estimated value of the relative risk aversion parameter is around 2.7, which is in line with other articles that have estimated this parameter for the Brazilian Economy, such as Araújo (2005) and Issler and Piqueira (2000). Our out-of-sample evaluation results showed that the RND has some ability to forecast the Brazilian Real exchange rate. Abe et all (2007) found also mixed results in the out-of-sample analysis of the RND forecast ability for exchange rate options. However, when we incorporate the risk aversion into RND in order to obtain a Real-world density, the out-of-sample performance improves substantially, with satisfactory results in both Kolmogorov and Berkowitz tests. Therefore, we would suggest not using the "pure" RND, but rather taking into account risk aversion in order to forecast the Brazilian Real exchange rate.

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Estimando a Densidade da Taxa de Câmbio Usando Modelos Paramétricos: o Caso do Brasil

Cited by 3 publications

References 25 publications

Do inflation-linked bonds contain information about future inflation?

Do inflation-linked bonds contain information about future inflation?

Eatimating risk aversion, Risk-Neutral and Real-World Densities using Brasilian Real currency options

Estimating Relative Risk Aversion, Risk-Neutral and Real-World Densities Using Brazilian Real Currency Options

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