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...

The degree of smoothness of interest rates alongside the maturity spectrum can provide indications regarding the degree of quot;arbitrage trading activityquot; in interest rate markets, which in turn may be related, to some extent, to market expectations, risk aversion and market liquidity. We...

Yield curves built from liquid instruments tend to exhibit specific features, both in term of smoothness and in term of patterns. The paper presents empirical evidence that those liquid yield curves frequently conform to a specific functional form. This specific functional form is predicted by a...

This paper examines the predictive properties of risk indicators for the foreign exchange markets. In particular it considers the predictive properties of historical volatilities and implied volatilities for movements in various bilateral exchange rates and compares them with the analogous...

This paper proposes a forward-looking indicator of risk in the foreign exchange markets calculated from the implied volatilities of currency options according to the Garman-Kohlhagen model. We discuss the properties of such indicator and stress that it is related to a notion of risk that does...

Central bank collateral policies came under pressure with the 2007-08 financial market crisis. This paper addresses the rationale for and constraints in taking collateral, and recent practices in different collateral frameworks. It then considers the risks of adverse selection. The paper...

This paper proposes an unconventional method for analyzing the cost of foreign exchange rate mechanisms using option pricing theory. The insurance coverage embedded in the exchange rate regime is analogous to a currency option (or a portfolio of currency options) whose pay-off can be explicitly...

Central bank collateral policies came under pressure with the 2007-08 financial market crisis. This paper addresses the rationale for and constraints in taking collateral, and recent practices in different collateral frameworks. It then considers the risks of adverse selection. The paper...

The paper reviews the policy response of major central banks during the 2007–08 financial market turbulence and suggests that there is scope for convergence among central bank operational frameworks through the adoption of those elements that proved most instrumental in calming markets. These...