Noise Trading, Central Bank Interventions, and the Informational Content of Foreign Currency Options

Front Cover
Springer Science & Business Media, Dec 6, 2001 - Business & Economics - 207 pages
A flexible instrument to insure against adverse exchange rate movements are options on foreign currency. Often a relatively simple foreign currency option valuation model is used to address issues related to the pricing and hedging of such options. The results of many empirical studies document that real-world foreign currency option premia deviate from those predicted by the baseline model. In the first part of the book, it is shown that a noise trader model can help to explain the observed mispricing of the baseline foreign currency option pricing model. In the second part of the book, it is studied how policymakers can exploit the pricing errors of the baseline model. In particular, it is examined how option pricing theory can be applied to assess the effectiveness of central bank interventions in the foreign exchange market. To this end, a model is constructed to analyze the effectiveness of the interventions conducted by the Deutsche Bundesbank during the Louvre period.
 

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

I
1
II
7
III
8
IV
11
V
14
VI
19
VII
23
VIII
24
XXIII
101
XXIV
104
XXV
114
XXVI
124
XXVII
132
XXVIII
136
XXIX
141
XXX
144

IX
27
X
38
XI
43
XII
46
XIII
50
XIV
57
XV
67
XVI
72
XVII
81
XVIII
83
XIX
85
XX
89
XXI
91
XXII
98
XXXI
145
XXXII
149
XXXIII
152
XXXIV
159
XXXV
161
XXXVI
167
XXXVII
171
XXXVIII
178
XXXIX
183
XL
186
XLI
190
XLII
206
Copyright

Other editions - View all

Common terms and phrases

Bibliographic information