Year: 1991
Author: Behnke, Ernst-August
Credit and Capital Markets – Kredit und Kapital, Vol. 24 (1991), Iss. 1 : pp. 1–14
Abstract
The Influence of Option Markets on the Stability of Foreign Exchange Markets
This study analyzes within the framework of the option price theory of Black and Scholes the importance of arbitrage relations between option and futures markets for the simultaneous equilibrium of foreign exchange markets. It shows that the creation of option markets and the resultant hedging contracts of option suppliers may destabilize the orginial equilibrium. In the case of alternative exchange rate expectations in particular, supply and demand may, under certain conditions, no longer be found to be balancing each other at the level of all market participants' average expectations, but to show a polarization of countervailing equilibrium exchange rates. In borderline cases, a situation of multiple (stable and instable) equilibria may occur on the foreign exchange market impairing the efficiency of futures markets and increasing the volatility of exchange rates.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.24.1.1
Credit and Capital Markets – Kredit und Kapital, Vol. 24 (1991), Iss. 1 : pp. 1–14
Published online: 1991-01
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 14
Author Details
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Behnke, Ernst-August: Stationäres und intertemporäres Gleichgewicht auf den Devisenmärkten bei festen und flexiblen Wechselkursen. Schweizerische Zeitschrift für Volkswirtschaft und Statistik, 1980, S. 171 – 194.
Google Scholar -
Black, Fischer; Scholes, Myron: The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 1973, S. 637 – 654.
Google Scholar -
Cox, John C.; Ross, Stephan A.; Rubinstein, Mark: Option Pricing: A Simplified Approach. Journal of Financial Economics, 1979, S. 229 – 263.
Google Scholar -
Le Roy, Stephan F.: Efficient Capital Markets and Martingales. Journal of Economic Literature, 1989, S. 1583 – 1621
Google Scholar -
Sohmen, Egon: Wechselkurs und Währungsordnung. Tübingen 1973.
Google Scholar -
Weicker, Johannes; Schindler, Klaus: Währungsoptionsscheine und der Rückerstattung – Währungsoptionsschein (RWOS – money-back currency warrant) der Nordiska Investeringsbanken (NIB)*. Kredit und Kapital, 1989, S. 239 – 261.
Google Scholar