BIS paper seeks hints that Swiss franc floor was about to break
Measures derived from option prices indicate credibility fell before floor was removed
A paper seeking to identify signs the Swiss franc floor was about to break in 2015 has found there may have been some hints – but forecasting the full exchange rate movement is difficult.
The working paper, published by the Bank for International Settlements, derives probability densities for future exchange rates from option prices at the time. The result indicates that while break probabilities never significantly exceeded 50%, the credibility of the floor of Sfr1.20 to the euro did decline
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