What Option Prices Tell Us About the ECB's Unconventional Monetary Policies

43 Pages Posted: 11 Dec 2018 Last revised: 17 Dec 2018

See all articles by Nander de Vette

Nander de Vette

De Nederlandsche Bank

Annelie Petersen

De Nederlandsche Bank

Stan Olijslagers

University of Amsterdam

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

Abstract

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 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: Exchange Rate Crash Risk, mixed diffusion jump risk models, Quantitative easing, risk reversals, unconventional monetary policies

JEL Classification: E44, E52, E58, E65, G12, G13, G14

Suggested Citation

de Vette, Nander and Petersen, Annelie and Olijslagers, Stan and van Wijnbergen, Sweder, What Option Prices Tell Us About the ECB's Unconventional Monetary Policies (December 2018). CEPR Discussion Paper No. DP13371. Available at SSRN: https://ssrn.com/abstract=3298784

Nander De Vette (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Annelie Petersen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Stan Olijslagers

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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