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

45 Pages Posted: 10 Apr 2019

See all articles by Stan Olijslagers

Stan Olijslagers

University of Amsterdam

Annelie Petersen

De Nederlandsche Bank

Nander de Vette

De Nederlandsche Bank

Sweder van Wijnbergen

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

Date Written: March 29, 2019

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

Suggested Citation

Olijslagers, Stan and Petersen, Annelie and de Vette, Nander and van Wijnbergen, Sweder, What Option Prices Tell Us About the ECB’s Unconventional Monetary Policies (March 29, 2019). De Nederlandsche Bank Working Paper No. 629. Available at SSRN: https://ssrn.com/abstract=3368957 or http://dx.doi.org/10.2139/ssrn.3368957

Stan Olijslagers (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Annelie Petersen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Nander De Vette

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
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

Register to save articles to
your library

Register

Paper statistics

Downloads
24
Abstract Views
190
PlumX Metrics