Index analysis of fat tails

[clarcombe]

I have been doing some analysis of non normal distribution of 1 month movements in the indices. Using a rolling 30 day window, I have compared closes and divided the results into percentage moves.

I have done this for the Dax and FTSE over a 10 year period and the Dax shows a very fat tail on the downside. Its almost like an S on its side. The FTSE shows a more normal distribution but still not totally normal.

I was wondering if anyone else has done this sort of analysis on other indices at all ?

If you trade the indices what do you trade options on and why?

Thanks

Colin

BTW I consider this Dax knowledge an edge knowing never to short Dax puts !!

 

[mambo5]

Interesting i did some work on FTSE implied distributions back in 2001, i'll have to try and find it and compare notes. Did the fat tails on the DAX persist in most periods? I think i recall that the fat tails i observed on the FTSE implied distributions were very linked to the technical picture of the market at that time.. I looked at 1 month expiries back then.

 

[clarcombe]

Did the fat tails on the DAX persist in most periods?

I dont have the figures to hand as I did this work a while ago.I am guessing that the fatness came from the period of 2000-2002 as this is when the Dax fell off a cliff due to Nasdaq.

I can't remember the FTSE having the same shape although it still had a slightly fat bottom.

I was wondering if anyone has done any work with other indices or indeed currencies.