The informational content of over-the-counter currency options

Peter 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. JEL Classification: G13, G14, C22, C53

Keywords: Density; forecasting; FX; Interval; volatility (search for similar items in EconPapers)
Date: 2004-06
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Informational Content of Over-the-Counter Currency Options (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2004366

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