Current and Historical Market-Based Probabilities

Market-Based Probabilities: A Tool for Policymakers [PDF]
Ron Feldman, Ken Heinecke, Narayana Kocherlakota, Sam Schulhofer-Wohl and Tom Tallarini

This page first provides a tool that generates customized data on Market-Based Probabilities and then details the motivation for reviewing such data.


Customize the chart

Hover or tap on lines to see data point detail

Customize the chart

Market Probability Density


Hover or tap on lines to see data point detail

Statistics of the Distributions


MPD statistics [.csv, 3mb]

We can observe the current prices of assets (commodities like gold or wheat, or financial assets like stocks) from transactions that are taking place every instant in markets all over the world. But the public and policymakers often need to make decisions that depend on what’s going to happen to asset prices in the future. For a large number of assets, we use prices from option markets to estimate the chance or probability of future changes in that asset’s price. Thus, on this web page we provide estimates of the probability of a 20% increase in the S&P 500 over the coming year, or the probability of a 20% fall in the dollar value of the euro over the next six months.

To be more precise, we provide option market based estimates of probabilities. We do so because the Federal Reserve Bank of Minneapolis has concluded that the economic policymakers will typically find market-based probabilities useful in their decision-making. Most importantly, the market-based probability accounts for how valuable resources will be in the future relative to today. For example, suppose we find that the market-based probability of a 20% fall in real estate prices is larger than the market-based probability of a 20% increase in real estate prices. We can conclude that market participants’ current valuation of resources in the former “large decline” case is higher than their current valuation of resources in the latter “large increase” case. Policymakers can best compare current economic costs against future economic benefits (or vice versa) if they make use of this kind of information about the current valuation of future resources. Market-based probabilities are often described by economists as risk-neutral probabilities.

To automatically receive updates on future asset value analysis from The Federal Reserve Bank of Minneapolis, please contact us at option-report-feedback@mpls.frb.org.