Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns

August 1, 2001

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Exchange rate flexibility has facilitated an impressively fast insertion of the Czech koruna and the Polish zloty into the global currency market. However, exchange rate volatility patterns differ: Lower volatility is observed for the koruna against the euro relative to the U.S. dollar, while the opposite is true for the zloty, apparently related to earlier financial integration of the Czech Republic with Europe and early dollarization in Poland as a result of initial higher inflation rates. By contrast, the currency options market shows enhanced information content of both currencies against the euro reflected in the behavior of their implied volatility.

Subject: Currencies, Currency markets, Exchange rate policy, Exchange rates, Financial institutions, Financial markets, Foreign exchange, Money, Options

Keywords: break, Currencies, Currency markets, currency option, Eastern Europe, exchange rate, Exchange rate policy, Exchange rates, financial market, option market, option volatility, options, Polish zloty, U.S. dollar, volatility, WP, zloty

Pages:
30
Volume:
2001
DOI:
https://doi.org/10.5089/9781451854275.001
Issue:
120
Series:
Working Paper No. 2001/120
Stock No:
WPIEA1202001
ISBN:
9781451854275
ISSN:
1018-5941

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