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An Interpretation of Czech FX Options

Author

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  • Pavel Bouc
  • Martin Cincibuch

Abstract

This paper opens with a brief description of the Czech FX options market. Several case studies of the Czech koruna option market illustrate how options reflect market sentiment and structural breaks. Risk-neutral implied distributions are suggested as a monitoring tool. Moreover, clear indications of the rational, forward-looking behavior of option prices were identified before the Czech Republic?s 1997 currency crisis, and the results of statistical tests support the ?rational market? hypothesis.

Suggested Citation

  • Pavel Bouc & Martin Cincibuch, 2004. "An Interpretation of Czech FX Options," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(7-8), pages 286-304, July.
    • Handle: RePEc:fau:fauart:v:54:y:2004:i:7-8:p:286-304
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    Cited by:

    1. Jesús Crespo Cuaresma & Tomáš Slacík, 2010. "Could Markets Have Helped Predict the Puzzling Exchange Rate Path in CESEE Countries during the Current Crisis?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 32-48.
    2. Martin Cincibuch, 2002. "Distributions Implied by Exchange Traded Options: A Ghost’s Smile?," CERGE-EI Working Papers wp200, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Wilkens, Sascha & Roder, Klaus, 2006. "The informational content of option-implied distributions: Evidence from the Eurex index and interest rate futures options market," Global Finance Journal, Elsevier, vol. 17(1), pages 50-74, September.
    4. Jesús Crespo Cuaresma & Adam Gersl & Tomáš Slačík, 2010. "Global Financial Crisis and the Puzzling Exchange Rate Path in CEE Countries," Working Papers IES 2010/24, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2010.

    More about this item

    Keywords

    currency options; emerging markets; risk-neutral distributions; efficiency tests; OTC;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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