The information content in the offshore Renminbi foreign-exchange option market : Analytics and implied USD/CNH densities

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Title: The information content in the offshore Renminbi foreign-exchange option market : Analytics and implied USD/CNH densities
Author: Funke, Michael ; Loermann, Julius ; Tsang, Andrew
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 15/2017
Year of publication: 2017
Publication date: 23.10.2017
Pages: 42
Subject (yso): valuuttamarkkinat; optiot; valuuttakurssit; ennusteet
Keywords: Bofit-kokoelma; johdannaiset; valuutat; Kiina; Hong Kong; Yhdysvallat
JEL: C53; F31; F37
Other keywords: offshore renminbi; options; risk-neutral densities; real-world densities; forecasting
Abstract: In line with the deepening of the derivative foreign-exchange market in Hong Kong, we recover risk-neutral probability densities for future US dollar/offshore renminbi exchange rates as implied by exchange rate option prices. The risk-neutral densities (RND) approach is shown to be useful in analyzing market sentiment and risk aversion in the renminbi market. We include a forecasting exercise that confirms market participants were able to forecast the shape of the actual densities correctly for short horizons, even if their exact location could not be determined.
Rights: https://helda.helsinki.fi/bof/copyright


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