Extracting Market Expectations from Currency Options’ Risk Reversals

Katarzyna Czech


Measures of volatility implied in option prices can provide important insight into market participants’ perception about the future price movement of the underlying asset. The aim of the paper is to show the application of foreign-exchange options’ 25-delta risk reversals to evaluate skewness of market expectations on future changes in currency value. It has been shown that different events, such as the United States subprime mortgage crisis, the collapse of Lehman Brothers, the 2015 Pacific typhoon or the 2016 Brexit referendum, highly affected market view about the balance of risk between a large appreciation and a large depreciation of the currency. In the analysed period, the market quotes on risk reversals were substantially changing.


foreign exchange market; 25-delta risk reversal; currency options; carry trade speculation strategies; Brexit

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DOI: http://dx.doi.org/10.17951/h.2017.51.6.63
Data publikacji: 2018-02-27 16:37:56
Data złożenia artykułu: 2017-05-22 12:15:36


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