Year: 2016
Type: report
Abstract: Exchange rates and option prices incorporate market participants' views about the credibility and the effects of exchange rate targets.I present a model to determine exchange rates under policy targets that can be used to price options.The model is estimated with Euro-Swiss Franc exchange rate and options price data.In the first few months of the minimum exchange rate policy, the implied survival probability of the policy for a three month horizon was typically less than 75%.Over time, the credibility increased and this probability reached 95% in August 2014.The analysis also implies that during the second quarter of 2012, when reserve accumulation was high, the exchange rate without the policy would have been as low as about 1 Swiss franc per euro.
DOI: 10.3386/w21977
Author: Urban Jermann
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2621703526