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Currency crisis prediction using ADR market data: An options-based approach


  • Maltritz, Dominik
  • Eichler, Stefan


During capital control episodes, large price deviations between American Depositary Receipts (ADR) and their underlying stocks signal that a currency crisis is about to occur. We interpret this price spread as the price of a call option. Using option pricing theory we derive detailed information about both the probability of a currency crisis and the expected magnitude of devaluation. Analyzing daily ADR market data preceding the Venezuelan crisis (1996), our approach predicts crisis probabilities of almost 100% and forecasts the exchange rate after floating quite accurately. During the Argentine crisis (2002), the estimated exchange rates are similar to the actual ones.

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  • Maltritz, Dominik & Eichler, Stefan, 2010. "Currency crisis prediction using ADR market data: An options-based approach," International Journal of Forecasting, Elsevier, vol. 26(4), pages 858-884, October.
  • Handle: RePEc:eee:intfor:v:26:y::i:4:p:858-884

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    References listed on IDEAS

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    Cited by:

    1. Antoine Kornprobst & Raphael Douady, 2015. "An Empirical Approach to Financial Crisis Indicators Based on Random Matrices," Papers 1506.00806,, revised Sep 2017.
    2. repec:hal:journl:halshs-01169307 is not listed on IDEAS
    3. Antoine Kornprobst & Raphaël Douady, 2015. "A Pratical Approach to Financial Crisis Indicators Based on Random Matrices," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01169307, HAL.
    4. Eichler, Stefan & Karmann, Alexander & Maltritz, Dominik, 2011. "The term structure of banking crisis risk in the United States: A market data based compound option approach," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 876-885, April.


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