The Sovereignty Option: The Quebec Referendum and Market Views on the Canadian Dollar

Posted: 17 Oct 1996

See all articles by Michael P. Leahy

Michael P. Leahy

Board of Governors of the Federal Reserve System

Charles P. Thomas

Thomas & Son Analytics

Date Written: June 1996

Abstract

We use exchange traded options on Canadian dollar futures to estimate the market's risk-neutral distribution for the Canadian dollar in the days before and after the Quebec sovereignty referendum. We employ a relatively new technique that places little a-priori structure on the estimated distribution. This lack of structure allows the estimated distribution to reflect the multi-modal nature of expectations associated with the referendum's results. The technique is especially suited to circumstances in which a particular event will reduce a large degree of uncertainty prior to the expiration date of the options. Our estimated distributions are consistent with a significant perceived probability that the Canadian dollar would move up or down by as much as 5 percent as a result of the vote.

JEL Classification: C14, C53, F31, G13, G14, G15

Suggested Citation

Leahy, Michael P. and Thomas, Charles P., The Sovereignty Option: The Quebec Referendum and Market Views on the Canadian Dollar (June 1996). Board of Governors of the Federal Reserve System International Finance Disc. Paper 555. Available at SSRN: https://ssrn.com/abstract=4432

Michael P. Leahy (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-3729 (Phone)
202-452-6424 (Fax)

Charles P. Thomas

Thomas & Son Analytics ( email )

5409 Center St
Chevy Chase, MD 20815
United States
2022075834 (Phone)

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