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On the Credibility of the Euro/Swiss Franc Floor: A Financial Market Perspective

Hertrich, Markus and Zimmermann, Heinz. (2017) On the Credibility of the Euro/Swiss Franc Floor: A Financial Market Perspective. Journal of Money, Credit, and Banking, 49 (2-3). pp. 567-578.

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Official URL: http://edoc.unibas.ch/54631/

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Abstract

We estimate the risk-neutral break probabilities of a realignment of the EUR/CHF 1.20 floor, maintained by the SNB from September 6, 2011, to January 15, 2015, using put options and an option pricing model, which assumes a lower barrier for the exchange rate. We estimate probabilities considerably different from zero, even when the exchange rate traded far above the floor.We observe a drastic increase in the break probabilities up to approximately 50% shortly before the floor was abandoned. From an Option market perspective, the credibility of the SNB in maintaining the floor was, thus, substantially lower than publicly claimed.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Finanzmarkttheorie (Zimmermann)
06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > ├ľkonometrie und Statistik (Kleiber)
UniBasel Contributors:Hertrich, Markus and Zimmermann, Heinz
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Wiley
ISSN:0022-2879
e-ISSN:1538-4616
Note:Publication type according to Uni Basel Research Database: Journal article
Identification Number:
Last Modified:20 Mar 2017 08:19
Deposited On:20 Mar 2017 08:19

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