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An Options-Based Analysis of Emerging Market Exchange Rate Expectations: Brazil's Real Plan, 1994-1999

Listed author(s):
  • Campa, J.M.
  • Chang, P.H.K.
  • Refalo, J.F.

This paper uses currency option data from the BMF, the Commodities and Futures exchange in Sao Paulo, Brazil, to investigate market expectations on the Brazilian Real-U.S. dollar exchange rate from October 1994 through March 1999. Using options data, we derive implied probability density functions (PDF) for expected future exchange rates and thus measures of the credibility of the "crawling peg" and target zone ("maxiband") regimes governing the exchange rate.

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Paper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 0006.

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Length: 63 pages
Date of creation: 2000
Handle: RePEc:fth:cemfdt:0006
Contact details of provider: Postal:
Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.

Phone: 914290551
Fax: 914291056
Web page: http://www.cemfi.es/
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  1. Bodurtha, James N. & Courtadon, Georges R., 1987. "Tests of an American Option Pricing Model on the Foreign Currency Options Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 153-167, June.
  2. Andrew K. Rose & Lars E.O. Svensson, 1993. "European Exchange Rate Credibility Before the Fall," NBER Working Papers 4495, National Bureau of Economic Research, Inc.
  3. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
  4. Giuseppe Bertola & Lars E. O. Svensson, 1993. "Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 689-712.
  5. Svensson, Lars E O, 1991. "The Simplest Test of Target Zone Credibility," CEPR Discussion Papers 493, C.E.P.R. Discussion Papers.
  6. Campa, Jose M. & Chang, P. H. Kevin & Reider, Robert L., 1998. "Implied exchange rate distributions: evidence from OTC option markets1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 117-160, February.
  7. José B. Campa & P.H. Kevin Chang & Robert L. Reider, 1997. "ERM bandwidths for EMU and after: evidence from foreign exchange options," Economic Policy, CEPR;CES;MSH, vol. 12(24), pages 53-89, 04.
  8. Campa, Jose Manuel & Chang, P H Kevin, 1996. "Arbitrage-Based Tests of Target-Zone Credibility: Evidence from ERM Cross-Rate Options," American Economic Review, American Economic Association, vol. 86(4), pages 726-740, September.
  9. Campa, Jose M & Chang, P H Kevin, 1998. "ERM Realignment Risk and Its Economic Determinants as Reflected in Cross-Rate Options," Economic Journal, Royal Economic Society, vol. 108(449), pages 1046-1066, July.
  10. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
  11. Malz, Allan M., 1996. "Using option prices to estimate realignment probabilities in the European Monetary System: the case of sterling-mark," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 717-748, October.
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