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How to intervene in foreign exchange market withoutbuying/selling dollars?
Sumantra Pal
National Graduate Institute for Policy Studies
July 2,2015
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 1 / 12
market: any day
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 2 / 12
market expectations
How to monitor?
How to anchor?
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 3 / 12
market expectations
How to monitor?
How to anchor?
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 3 / 12
market expectations
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 4 / 12
Counter-factual: What if?
Spot-intervention?
Options-based intervention?
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 5 / 12
Counter-factual: What if?
Spot-intervention?
Options-based intervention?
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 5 / 12
Spot-intervention
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 6 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
Options-based intervention
sell options: short
buy options:long
both:spread
at same strike: straddle
at different strike: strangle
at several: risk-reversal
short-straddle + butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 7 / 12
a short straddle
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 8 / 12
a butterfly spread
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 9 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
a day, another day, any day
Do if:
liquid fx options market
exchange-traded + cash-settled in domestic currency
learn from:
Australia, Colombia, Mexico
improve:
Ross Recovery Theorem (JF, 2015)
derive real-world density
derive and monitor changes in risk-preference
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 10 / 12
everyday + bad day
Do it everyday
Don’t over-do it
It can save your day, some day
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 11 / 12
everyday + bad day
Do it everyday
Don’t over-do it
It can save your day, some day
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 11 / 12
everyday + bad day
Do it everyday
Don’t over-do it
It can save your day, some day
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 11 / 12
merci
Sumantra Pal (GRIPS) Fx intervention + Currency options July 2,2015 12 / 12
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