Options valuation included jumps in intervention period

Oceňování opcí se zahrnutím skoků v období intervencí

Martin Diviš

Český finanční a účetní časopis, 2017, vol. 2017, issue 3, 19-38

Abstract: The fundamental equilibrium of the FX rate was significantly impacted by interventions of the Czech national bank. This article focuses on intervention influence on option valuation EURCZK currency pair as an underlying asset in years 2013-2017. We describe and quantify the prices of aforementioned FX options applying different approaches for historical and implied volatility estimation. Applying the implied volatility, we calibrate the jump diffusion model which provides the description of magnitude and direction of jumps in the underlying asset price. Mainly to ensure better comparability of the data for volatility and model estimation, both pre-intervention and post-intervention data were used. Estimated parameters show, that markets in 2013 did not trust the Czech economy and expected jump depreciation of the Czech crown. In 2014 and 2015 markets expected no major deviations from the exchange rate commitment and, therefore, only depreciation was expected. From 2016 onwards markets adjusted expectations in line with the exit from exchange rate commitment and hence expected appreciation. Due to high volumes of speculative capital and large short sales of the Czech crown markets again expected depreciation.

Keywords: Option; Volatility; Jump diffusion model; Intervention; Opce; Volatilita; Model se skoky; Intervence (search for similar items in EconPapers)
JEL-codes: C61 E5 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://cfuc.vse.cz/doi/10.18267/j.cfuc.499.html (text/html)
http://cfuc.vse.cz/doi/10.18267/j.cfuc.499.pdf (application/pdf)
free of charge

Related works:
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: https://EconPapers.repec.org/RePEc:prg:jnlcfu:v:2017:y:2017:i:3:id:499:p:19-38

Ordering information: This journal article can be ordered from
Český finanční a účetní časopis, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3
http://cfuc.vse.cz

DOI: 10.18267/j.cfuc.499

Access Statistics for this article

Český finanční a účetní časopis is currently edited by Karel Brůna

More articles in Český finanční a účetní časopis from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().