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Volume 54, Issue 7 -8

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An Interpretation of Czech FX Options

Bouc, Pavel; Cincibuch, Martin

Year: 2004   Volume: 54   Issue: 7 -8   Pages: 286-304

Abstract: This paper opens with a brief description of the Czech FX options market. Several case studies of the Czech koruna option market illustrate how options reflect market sentiment and structural breaks. Risk-neutral implied distributions are suggested as a monitoring tool. Moreover, clear indications of the rational, forward-looking behavior of option prices were identified before the Czech Republic?s 1997 currency crisis, and the results of statistical tests support the ?rational market? hypothesis.

JEL classification: G13, G14, G15

Keywords: currency options; emerging markets; risk-neutral distributions; efficiency tests; OTC

RePEc: n/aci

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