Empirical evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices contains a term structure depending on both calendar-time and time to maturity. This...

Using a new dataset of currency option prices, we study the evolution of investor confidence in 1992-98 over the chance of individual currencies to converge to the euro. Convergence risk, which may reflect uncertainty over policy commitment as well as exogenous fundamentals, induces a level of...

The sheer existence of EUR/CHF put options with strike prices below the EUR/CHF 1.20 floor, trading at non-zero cost, challenged the full credibility of the Swiss National Bank (SNB) in enforcing the lower barrier implemented in September 6, 2011 and abandoned on January 15, 2015. We estimate...

Proposed by M. Stutzer (1996), canonical valuation is a new method for valuing derivative securities under the risk-neutral framework. It is non-parametric, simple to apply, and, unlike many alternative approaches, does not require any option data. Although canonical valuation has great...

The log-normal Garman and Kohlhagen (1983) currency option model usually creates pricing biases when matched with the market prices. The observed price bias pattern is generally consistent with the mixed jump-diffusion distribution for exchange rates. Various studies have provided evidence of...

We study measures of foreign exchange rate volatility based on high-frequency (5-minute) $/DM exchange rate returns using recent nonparametric statistical techniques to compute realized return volatility and its separate continuous sample path and jump components, and measures based on prices of...

The purpose of this paper is to provide a new set of tools for policy makers at central banks. Based on the Garman-Kohlhagen formula for currency options, this research extends it with the Taylor-rule expression used for inflation targeting, thus obtaining the corresponding Call and Put options...

This is the first study that employs option pricing model to measure the position-unwinding risk of currency carry trade portfolios, which covers moment information as the proxy for crash risk. We show that high interest-rate currencies are exposed to higher position-unwinding risk than low...

Several central banks in emerging economies are concerned with excessive volatility in foreign exchange markets and would like to control the direction and speed with which the value of their currency changes. Historically, currency market interventions have consisted of using foreign exchange...

The two most intriguing anomalies in currency markets are: 1) the implied volatility smile in currency options, and 2) the forward discount bias in currency exchange rates. I show that if currency options are valued in analogy with the underlying currency and beliefs are heterogeneous, then the...