This paper develops a model based on a target-zone approach in which the dynamics of government bond yields follow a quasi-bounded process, such that the zero lower bound (ZLB) can be breached if the probability leakage condition of the dynamics is met. A one-sided U-shaped bond yield...

In this paper, we comment on the paper quot;Pricing Double Barrier Options using Laplace Transformsquot; by Antoon Pelsser. We illustrate that the same solutions of double barrier option values in terms of Fourier sine series can be obtained by using both Laplace transform and the method of...

The theoretical prediction on targeted exchange rates expects mean reversion of the exchange rates. There is some empirical evidence to support this prediction. This paper presents a model for valuing European foreign exchange options in which the forward foreign exchange rate follows a...

When a currency’s appreciation expectation cannot be offset by lower interest rates which have fallen to the zero lower bound, the monetary authority needs to intervene to prevent currency appreciation due to capital inflows and resulting in foreign reserve accumulation. Based on a standard...

Hong Kong's Linked Exchange Rate system (LERS) has been in operation since 1983 during which time many other fixed exchange rate systems have succumbed to shocks and/or speculative attacks. This paper investigates how market participants assessed changes made to the LERS by using the tools of...

Our paper presents a crude oil price model in which the price is confined in a wide moving band. A price crash occurs when the price breaches the lower boundary where a smooth-pasting condition is imposed. Using an asymmetric mean-reverting fundamental (supply/demand) shock, the solution derived...

This note analyses the impact of the global credit crisis on the FX swap market and discusses its potential implications. The turbulence in money markets has spilled over to FX swap markets amid a reappraisal of counterparty risks during the recent financial turmoil. We examine the situations of...

This study develops a stress-testing framework to assess liquidity risk of banks, where liquidity and default risks can stem from the crystallisation of market risk arising from a prolonged period of negative asset price shocks. In the framework, exogenous asset price shocks increase banks'...

On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB...