Financial Markets' Views about the Euro-Swiss Franc Floor

17 Pages Posted: 2 Sep 2014 Last revised: 22 Jan 2017

See all articles by Urban J. Jermann

Urban J. Jermann

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: January 21, 2017


Exchange rates and option prices incorporate market participants' views about the credibility and the effects of exchange rate targets. This paper presents a tractable exchange rate model for the Euro-Swiss franc floor that can be used to price options. The model is estimated with exchange rate and options price data. In the first few months of the minimum exchange rate policy, the implied survival probability of the policy for a three month horizon was typically less than 75%. Over time, the credibility has increased and this probability has reached almost 95% in August 2014. The analysis also implies that during the second quarter of 2012, when reserve accumulation was high, the exchange rate without the policy would have been as low as about 1 Swiss franc per euro. Since then, the EURCHF exchange rate would not have been a lot lower without the minimum exchange rate policy.

Keywords: Exchange rate target, FX options

JEL Classification: F31, G12

Suggested Citation

Jermann, Urban J., Financial Markets' Views about the Euro-Swiss Franc Floor (January 21, 2017). Available at SSRN: or

Urban J. Jermann (Contact Author)

University of Pennsylvania - Finance Department ( email )

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