Estimating and analysing currency options implied risk-neutral density functions for the largest new EU member states

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Estimating and analysing currency options implied risk-neutral density functions for the largest new EU member states

Author Info

Olli Castrén () (External Developments Division, DG-Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

Abstract

This paper uses data on currency options prices for the exchange rates of the three largest new EU member states Poland, Czech Republic and Hungary vis-à-vis the euro and the US dollar to estimate the risk-neutral density (RND) functions and the density interval bands. Analysing the RNDs, we find that only some of the implied moments on the Polish zloty exchange rate systematically move around policy events, while the implied moments on the RNDs on the Czech koruna and Hungarian forint show more systematic changes. Regarding the HUF/EUR currency pair, monetary policy news have a significant impact on all moments, while changes in implied standard deviation signal a higher probability of interest rate changes by the Hungarian central bank. The more marked results for HUF/EUR exchange rate could reflect the fixed exchange rate regime prevailing throughout the sample period.

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Paper provided by European Central Bank in its series Working Paper Series with number 440.

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Length: 49 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050440

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F31 - International Economics - - International Finance - - - Foreign Exchange
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-04 (All new papers)
NEP-EEC-2005-10-04 (European Economics)
NEP-FIN-2005-10-04 (Finance)
NEP-FMK-2005-10-04 (Financial Markets)
NEP-MAC-2005-10-04 (Macroeconomics)
NEP-MON-2005-10-04 (Monetary Economics)
NEP-TRA-2005-10-04 (Transition Economics)

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This page was last updated on 2009-12-10.

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