The Hour by Hour Behavior of the Implied Risk Neutral Density for the U.S. Stock Market in the Full "Anatomy of a Meltdown" Data Sample

VIDEO (.AVI FILE, 3.50 MB)

The paper "Anatomy of a Meltdown: The Risk Neutral Density for the S&P 500 in the Fall of 2008" analyzes the behavior of the Risk Neutral Density extracted from S&P 500 index options during September - November 2008, and contrasts it with what was seen in the market in October 2006 and October 2007.

This video shows how the Risk Neutral probability density behaved hour by hour during the 32 days that comprise our data sample. In each case, the density is for the expected level of the stock market on option expiration day, the third Friday of December 2006, 2007 or 2008, depending on the observation.

The graph title gives the date and time. The vertical green line shows the current forward level of the S&P index in the market at that time.

The center (black) portion of the curve comes directly from the options prices; the left (blue) and right (red) tails come from fitting tails from a Generalized Extreme Value distribution, as described in the paper. The legend gives technical details about the properties of the estimated density and the tails.

You can control the size and speed of the video using the player's controls. The slider lets you jump to a particular time easily. There is no audio.