The Intertemporal Relationship between the Currency Spot Market and the Currency Option Market

11 Pages Posted: 2 Feb 2011

See all articles by Ming-Shiun Pan

Ming-Shiun Pan

Shippensburg University - Department of Finance and Management Information & Analysis

Ralph T. Hocking

affiliation not provided to SSRN

Hong K. Rim

affiliation not provided to SSRN

Date Written: June 28, 2008

Abstract

This study examines the lead/lag relationship between currency option and currency spot markets for the Deutsche mark and the Japanese yen. Using intraday currency option transactions data for the year 1989 and applying a European type currency option pricing model, pair data series of the implied and the observed exchange rates are compiled. Causality tests are then employed to test the causal relation between the observed and the implied exchange rate changes. The results indicate that the currency spot market leads the currency option market by about ninety minutes.

Keywords: currency spot rates, currency options, implied standard deviation, implied spot rates, causality

Suggested Citation

Pan, Ming-Shiun and Hocking, Ralph T. and Rim, Hong K., The Intertemporal Relationship between the Currency Spot Market and the Currency Option Market (June 28, 2008). Journal of Business Finance & Accounting, Vol. 23, Issue 9-10, pp. 1307-1317, 2008. Available at SSRN: https://ssrn.com/abstract=1753446 or http://dx.doi.org/10.1111/1468-5957.00081

Ming-Shiun Pan (Contact Author)

Shippensburg University - Department of Finance and Management Information & Analysis ( email )

Shippensburg University
Shippensburg, PA 17257
United States
717-477-1683 (Phone)
717-477-4067 (Fax)

Ralph T. Hocking

affiliation not provided to SSRN

No Address Available

Hong K. Rim

affiliation not provided to SSRN

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