The information content of over-the-counter currency options

Peter F. Christoffersen and Stefano Mazzotta ()

No 366, Working Paper Series from European Central Bank

Abstract: Financial decision makers often consider the information in currency option valuations when making assessments about future exchange rates. The purpose of this paper is to systematically assess the quality of option based volatility, interval and density forecasts. We use a unique dataset consisting of over 10 years of daily data on over-the-counter currency option prices. We find that the OTC implied volatilities explain a much larger share of the variation in realized volatility than previously found using market-traded options. Finally, we find that wide-range interval and density forecasts are often misspecified whereas narrow-range interval forecasts are well specified.

Keywords: FX; Volatility; Interval; Density; Forecasting. (search for similar items in EconPapers)
JEL-codes: G13 G14 C22 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-for and nep-ifn
Date: 2004-06
View list of references

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp366.pdf (application/pdf)

Related works:
Working Paper: The Informational Content of Over-the-Counter Currency Options (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20040366

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().