What Option Prices tell us about the ECB's Unconventional Monetary Policies

Stan Olijslagers, Annelie Petersen (), Nander de Vette () and Sweder van Wijnbergen
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Annelie Petersen: DNB
Nander de Vette: DNB

No 18-096/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several messages emerge from the analysis. Announcing policies in general terms without precisely describing what exactly they entail does not move asset markets or actually increases crash risk. Also, policies directly focused on changing relative asset supplies do seem to have an impact, while measures aiming at easing financing costs of commercial banks do not.

Keywords: Quantitative Easing; Unconventional Monetary Policies; Exchange Rate Crash Risk; risk reversals; mixed diffusion jump risk models (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 E65 G12 G13 G14 (search for similar items in EconPapers)
Date: 2018-12-06
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: What Option Prices tell us about the ECB's Unconventional Monetary Policies (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20180096

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