We assess whether the euro had an impact first on the degree of integration of European financial markets, and, second, on the euro area term structure. We propose two methodologies to measure integration: one relies on time-varying GARCH correlations, and the other one on a regression...

The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty"), we find that a lax monetary policy decreases...

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...

In this paper we propose a new methodology to estimate the volatility of interest rates in the euro area money market. In particular, our approach aims at avoiding the limitations of currently available measures, i.e. the dependency on arbitrary choices in terms of maturity and frequencies...

Press releases announcing and explaining monetary policy decisions play a critical role in the communication strategy of central banks. Due to their market-moving potential, it is particularly important how they are drafted. Often, central banks start from the previous statement, and update the...

This paper presents empirical evidence that the corporate bond market is forward looking with respect to volatility. I use the Merton (1974) model to calculate a measure of implied volatility from corporate bond yield spreads. I find that corporate bond transaction prices contain substantial...

Volatilities implied from interest rate swaptions are used to assess the size and the sign of the compensation for volatility risk, for dollar, euro and pound rates at a daily frequency, between October 1998 and August 2006. The measurement of the volatility risk premium rests on a simple model...

Introducing bounded rationality into a standard consumption based asset pricing model with a representative agent and time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of...

We introduce a new analytical approach to price American options. Using an explicit and intuitive proxy for the exercise rule, we derive tractable pricing formulas using a short-maturity asymptotic expansion. Depending on model parameters, this method can accurately price options with...

This paper investigates the impact of heterogeneous beliefs of professional investors on the currency options market. Using a unique data set with detailed information on the foreign-exchange forecasts of about 50 market participants over more than ten years, we construct an empirical proxy for...