2
$\begingroup$

I was playing around with some fx rates and what caught my attention was the sudden drop of the fx rate EUR/CHF at the 15th of January 2015 4:00 - 5:00 am EST. What really happened that day? Was there any prior information directed towards traders and market makers in the context of qualitative risk management to avoid heavy looses? Is there any paper that describes the situation and how biased the volatility forecasts can be from the outliers pollution ?

enter image description here

$\endgroup$
7
$\begingroup$

What happened was totally unexpected end of peg against the euro @ 1.2CHF regime that Swiss central bank aborted. See some articles about it. As far as I know nobody in the markets knew, there was no indication whatsoever..

In terms of management, I'm afraid lots of people got heavy losses, particularly banks (Austria, Poland, Hungary) - lots of Swiss loans that got shockingly higher instalments overnight (by 20%) caused serious stress to portfolios of banks.

See for instance this good article. or google around this, to get more info - you can set google to look for content only at the beginning of 2015.

Regarding academia, there does not seem to be anything particularly interesting: https://scholar.google.com/scholar?as_ylo=2015&q=swiss+franc+unpegging&hl=cs&as_sdt=0,5

Regarding volatility forecasting, this would depend on your model, so hard to give a specific answer to that..

| improve this answer | |
$\endgroup$
2
$\begingroup$

The SNB took away the 1.2000 EURCHF floor it has kept for 2+ years without any prior warning to the market. The floor was initially introduced to keep Swiss Franc from strengthening due to buying demand from a troubled Euro Zone, and being an export economy. The Swiss National Bank had to defend its currency by absorbing Euro and keep on printing Francs. When the ECB, the European Central Bank, was about to announce its own QE programme, the SNB didn't see this as sustainable and threw in the towel and eventually let the market decide where the exchange rate should be. And after that event, the FX Options market has never been the same again...

| improve this answer | |
$\endgroup$
  • $\begingroup$ What do you mean by "has never been the same again?" $\endgroup$ – Michael Mark Dec 5 '16 at 9:46

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.