We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several messages emerge from the analysis. Announcing policies in general terms without precisely describing what exactly they entail does not instantly move asset markets or actually increases crash risk. Also, policies directly focused on changing relative asset supplies do seem to have an impact, while measures aiming at easing financing costs of commercial banks do not.
Keywords: Quantitative Easing, Unconventional Monetary Policies, Exchange Rate Crash Risk, risk reversals, mixed diffusion jump risk models.
JEL classifications: E44, E52, E58, E65, G12, G13, G14,
629 - What Option Prices tell us about the ECBs Unconventional Monetary Policies
- DNB Working Papers
Date 5 April 2019