The sovereignty option: the Quebec referendum and market views on the Canadian dollar
We use exchange traded options on Canadian dollar futures to estimate the market's risk-neutral distribution for the Canadian dollar in the days before and after the Quebec sovereignty referendum. We employ a relatively new technique that places little a priori structure on the estimated distribution. This lack of structure allows the estimated distribution to reflect the multi-modal nature of expectations associated with the referendum's results. The technique is especially suited to circumstances in which a particular event will reduce a large degree of uncertainty prior to the expiration date of the options. Our estimated distributions are consistent with a significant perceived probability that the Canadian dollar would move up or down by as much as 5 percent as a result of the vote.
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| Length: | |
| Date of creation: | 1996 |
| Date of revision: | |
| Handle: | RePEc:fip:fedgif:555 |
| Contact details of provider: | Postal: Web page: http://www.federalreserve.gov/ More information through EDIRC
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| Order Information: | Web: http://www.federalreserve.gov/pubs/ifdp/order.htm |
References listed on IDEAS
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- Allan M. Malz, 1995. "Using option prices to estimate realignment probabilities in the European Monetary System," Staff Reports 5, Federal Reserve Bank of New York.
- Bates, D.S., 1990. "The Crash Of '87: Was It Expected? The Evidence From Options Markets," Weiss Center Working Papers 28-90, Wharton School - Weiss Center for International Financial Research.
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