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...

This paper tests whether the exchange rates of the Czech koruna, the Hungarian forint, and the Polish zloty were anchored by market expectations concerning their euro locking rates. First, the process of the exchange rate is derived as a function of the following factors: (i) latent exchange...

In this paper we estimate risk-neutral probability density functions from EUR/HUF currency options using the Malz (1997) method. First, we compare different option-based indicators. We present so-called 'shortcut' indicators, i.e. indicators that can be calculated directly, without the...

This paper proposes a new test for the asset pricing model of the exchange rate. It examines whether the way market analysts generate their forecasts is closer to the one implied by the asset pricing model, or to any of those implied by some alternative models. The asset pricing model is...

This paper investigates the forecasting ability of survey data on exchange rate expectations with multiple forecast horizons. The survey forecasts are on the exchange rates of five Central and Eastern European currencies: Czech Koruna, Hungarian Forint, Polish Zloty, Romanian Leu and Slovakian...

The forward premium puzzle (FPP) is the negative correlation between the forward premium and the realized exchange rate return at maturities of a month and beyond. Some recent evidence shows that at maturities of multiple years and at the highest intra day frequency the correlation is positive...

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...

This paper proposes a new test for the asset pricing model of the exchange rate. It examines whether the way market analysts generate their forecasts is closer to the one implied by the asset pricing model, or to any of those implied by some alternative models. The asset pricing model is...

We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of...

Using exchange rates futures instead of forwards completes the maturity spectrum of the correlation between the spot return and the premium. The correlation decreases with increasing maturity, presumably due to a latent risk premium. We hypothesize that the influence of the unobserved risk...