The present study is an attempt to evaluate the predictability of the foreign exchange volatility in thirteen countries. The data covers the period of 2005-2009. To effectively forecast the volatility in the exchange rates, a GARCH model is used. The study compares the results between crisis...

Option prices seem to behave in ways inconsistent with the Black-Scholes model. Implied volatility varies with the strike price in a parabolic shape that is often called the volatility 'smile.' My objective in this paper is to identify implied probability distributions that might explain this...

The neutral band is the interval where deviations from Covered Interest Parity (CIP) are not considered meaningful arbitrage opportunities. The band is determined by transaction costs and risk associated to arbitrage. Seemingly large deviations from CIP in the foreign exchange markets for the US...

Risk neutral densities (RND) can be used to forecast the price of the underlying basis for the option, or it may be used to price other derivates based on the same sequence. The method adopted in this paper to calculate the RND is to firts estimate daily the diffusion process of the underlying...

Risk neutral densities (RND) can be used to forecast the price of the underlying basis for the option, or it may be used to price other derivates based on the same sequence. The method adopted in this paper to calculate the RND is to firts estimate daily the diffusion process of the underlying...

The purpose of this study is to examine the role of options volatility and bid-ask spread as microstructural variables in determining whether the foreign exchange market’s price formation process in response to macroeconomic announcements is characterised by changes in risk perception and...

The paper presents examples of application of error correction models (ECM) in forecasting daily changes of market volatility recorded on currency options markets in Poland, Hungary and South Africa. The models are based on the observed correlation between daily changes of spot rates and daily...