Clustering techniques applied to outlier detection of financial market series using a moving window filtering algorithm

In this study we combine clustering techniques with a moving window algorithm in order to filter financial market data outliers. We apply the algorithm to a set of financial market data which consists of 25 series selected from a larger dataset using a cluster analysis technique taking into account the daily behaviour of the market; each of these series is an element of a cluster that represents a different segment of the market. We set up a framework of possible algorithm parameter combinations that detect most of the outliers by market segment. In addition, the algorithm parameters that have been found can also be used to detect outliers in other series with similar economic behaviour in the same cluster. Moreover, the crosschecking of the behaviour of different series within each cluster reduces the possibility of observations being misclassified as outliers. JEL Classification: C19, C49, G19cluster analysis, financial market, moving filtering window algorithm, Outliers

Euro area banking sector integration: using hierarchical cluster analysis techniques

In this study we apply cluster analysis techniques, including a novel smoothing method, to detect some basic patterns and trends in the euro area banking sector in terms of the degree of homogeneity of countries. We find that in the period 1998-2004 the banking sectors in the euro area countries seem to have become somewhat more homogeneous, although the results are not unequivocal and considerable differences remain, leaving scope for further integration. In terms of clustering, the Western and Central European countries (like Germany, France, Belgium, and to some extent also the Netherlands, Austria and Italy) tend to cluster together, while Spain and Portugal and more recently also Greece usually are in the same distinct cluster. Ireland and Finland form separate clusters, but overall tend to be closer to the Western and Central European cluster. JEL Classification: C49, F36, G21banking sector, cluster analysis, financial integration

Interest rate expectations and uncertainty during ECB governing council days: evidence from intraday implied densities of 3-month Euribor

This paper analyses changes in short-term interest rate expectations and uncertainty during ECB Governing Council days. For this purpose, it first extends the estimation of risk-neutral probability density functions up to tick frequency. In particular, the non-parametric estimator of these densities, which is based on fitting implied volatility curves, is applied to estimate intraday expectations of threemonth EURIBOR three months ahead. The estimator proves to be robust to market microstructure noise and able to capture meaningful changes in expectations. Estimates of the noise impact on the statistical moments of the densities further enhance the interpretation. In addition, the paper assesses the impact of the ECB communication during Governing Council days. The results show that the whole density may react to the communication and that such repositioning of market participants’ expectations will contain information beyond that of changes in the consensus view already observed in forward rates. The results also point out the relevance of the press conference in providing extra information and triggering an adjustment process for interest rate expectations. JEL Classification: C14, E43, E52, E58, E61announcement effects, central bank communication, interest rate expectations, intraday analysis, option-implied densities, risk-neutral probability density functions, tick data

A quantitative mirror on the Euribor market using implied probability density functions

This paper presents a set of probability density functions for Euribor outturns in three months’ time, estimated from the prices of options on Euribor futures. It is the first official and freely available dataset to span the complete history of Euribor futures options, thus comprising over ten years of daily data, from 13 January 1999 onwards. Time series of the statistical moments of these option-implied probability density functions are documented until April 2010. Particular attention is given to how these probability density functions, and their associated summary statistics, reacted to the unfolding financial crisis between 2007 and 2009. In doing so, it shows how option-implied probability density functions could be used to contribute to monetary policy and financial stability analysis. JEL Classification: C13, C14, G12, G13financial, financial market, options, probability density functions

3-month Euribor expectations and uncertainty using option-implied probability densities

[eng] The evolution of market interest rates is a key component of the trans-mission of monetary policy. Central Banks, market participants and monetary policy practitioners make use of the information contained in financial prices to better understand market interest rates develop-ments. Such a comprehensive and quantitative assessment might also be derived from option-implied probability density functions (PDFs), and in particular when applied to Euribor options, which constitute a natural complement to the existing financial market indicators. A number of methods for constructing these option-implied PDFs have already been developed in the literature. In general, although these methods might differ in the extremes of the tails of the distribution, there is no major difference in the central section of the estimated option-implied PDFs. And, arguably it is the central section of the option-implied PDFs which is more likely to be useful for monetary policy purposes, in contrast to financial stability analysis, where there may be greater focus on the tails of the distribution. In particular, such option-implied PDFs have not been studied in detail during periods of financial crisis, where arguably they may be the most useful. In general, the methods that have been used to construct and estimate implied densities are "risk-neutral". Hence, they are indifferent regarding the investor behaviour and do not include a risk premium component. Some authors have already extended these methods to create "real-world" option-implied PDFs which incorporate the investor behaviour and take into account the risk premium component. However, there is very little research analysing and comparing the differences between these two densities in the Euribor market and, in particular, around episodes of crisis or monetary policy decisions. By using anon-parametric technique, based on the Bliss and Panigirzoglou methodology, this thesis presents an analysis of PDFs for Euribor outturns in three months’ time, using ”risk-neutral” and ”real-world” option-implied PDFs. This type of analysis allows us to reveal typical market reactions which could be potentially used by central banks as a complement to the already existing tools that allow them to take monetary policy decisions. * A quantitative mirror on the Euribor market using implied probability density functions. Puigvert-Gutiérrez J., de Vincent- Humphreys R. Eurasian Economic Review 2(1), 1-31, Spring 2012. * Interest rate expectations and uncertainty during ECB Go- verning Council days: Evidence from intraday implied den- sities of 3-month Euribor. Vergote O., Puigvert-Gutiérrez J. Journal of Banking and Finance 36 (2012) 2804-2823. * Interest rate forecasts, state price densities and risk premium from Euribor options. Ivanova V., Puigvert-Gutiérrez J. Journal of Banking and Finance 48 (2014) 210-223. The first two articles above have been also published in the ECB Working Paper Series and were additionally peer-reviewed by two anonymous referees.[cat] L'evolució dels tipus d'interès de mercat és un dels components princi-pals del mecanisme de transmissió de la política monetària. Els bancs centrals, els participants del mercat i els professionals de la política monetària recorren a la informació continguda en els preus financers per entendre millor l'evolució dels tipus d'interès de mercat. També és possible obtenir una avaluació completa i quantitativa d' aquestes ca-racterístiques a través de les funcions de densitat de probabilitat (PDFs, per les seves sigles en anglès) implícita en opcions, en particular quan s'apliquen a opcions sobre l'Euribor, la qual cosa constitueix un com-plement natural dels indicadors del mercat financer existents. La literatura recull diversos mètodes per a construir aquestes PDFs implícita basades en opcions. En general, si bé els mètodes poden pre-sentar diferències als extrems de les cues de la distribució, no s' obser-ven diferències significatives a la secció central de les PDFs implícites basades en opcions calculades. I, precisament, es pot afirmar que la secció central de les PDFs implícita basades en opcions és la que pot ser més útil a efectes de la política monetària, al contrari del que passa amb l' anàlisi de l'estabilitat financera, que s' acostuma a fixar més en les cues de la distribució. Concretament, aquestes PDFs implícita basades en opcions no s'han estudiat a fons durant períodes de crisi financera, que és precisament quan podrien resultar més útils. En general, els mètodes que s'han emprat per construir i calcular densitats implícites són «neutrals al risc». Per tant, són indiferents al comportament dels inversors i no inclouen el component de la prima de risc. Alguns autors ja han ampliat aquests mètodes, la qual cosa ha donat lloc a PDFs implícita basades en opcions “de condicions reals”, que incorporen el comportament dels inversors i tenen en compte el component de la prima de risc. No obstant això, hi ha molts pocs estudis que analitzin i comparin les diferències entre aquestes dues densitats en el mercat de l’Euribor i, en particular, en relació amb episodis de crisi o decisions de política monetària. En recórrer a una tècnica no paramètrica, basada en la metodologia de Bliss i Panigirzoglou, aquesta tesi presenta un anàlisi de PDFs per als resultats de l’Euribor a tres mesos, a partir de PDFs implícita basades en opcions “neutrals al risc” i “de condicions reals”. Un anàlisi d’aquestes característiques permet posar de manifest reaccions típiques dels mercats, que els bancs centrals podrien emprar com a complement de les eines de les quals ja disposen per prendre decisions de política monetària. Aquesta tesi consta dels tres articles següents, publicats en revistes internacionals arbitrades: * A quantitative mirror on the Euribor market using implied probability density functions. Puigvert-Gutiérrez J., de Vincent- Humphreys R. Eurasian Economic Review 2(1), 1-31. * Interest rate expectations and uncertainty during ECB Governing Council days: Evidence from intraday implied densities of 3-month Euribor. Vergote O., Puigvert-Gutiérrez J. Jour- nal of Banking and Finance 36 (2012) 2804-2823. * Interest rate forecasts, state price densities and risk premium from Euribor options. Ivanova V., Puigvert-Gutiérrez J. Journal of Banking and Finance 48 (2014) 210-223. Els dos primers s’han publicat també a la ECB Working Paper Series i van ser revisats, a més, per dos avaluadors anònims