IMF Working Papers

Central Bank Foreign Exchange Market Intervention and Option Contract Specification: The Case of Colombia

By Ousmene J Mandeng

June 1, 2003

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Ousmene J Mandeng. Central Bank Foreign Exchange Market Intervention and Option Contract Specification: The Case of Colombia, (USA: International Monetary Fund, 2003) accessed November 21, 2024
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

This paper aims to identify appropriate option contract specifications for effective central bank exchange market intervention. Option contract specifications determine the impact of options on the underlying asset or currency, and hence their actual effect on asset price or currency volatility and are therefore key to determining the effectiveness of option-based intervention. The paper reviews the experience of the systematic option-based foreign exchange market intervention of the Central Bank of Colombia and finds that its contract has only been moderately successful at abating exchange rate volatility, which is attributed here to sub-optimal contract specifications.

Subject: Currency markets, Exchange rates, Financial institutions, Financial markets, Financial regulation and supervision, Foreign exchange, Foreign exchange intervention, Hedging, Options

Keywords: Colombia, Currency markets, Exchange rates, Foreign exchange intervention, Hedging, Intervention rule, Option auction, Option bearer, Option contract, Option contract specification, Option position, Option user, Option volume, Options, Plain vanilla option, Put, Strike price, Volatility call option option contract, Volatility option, WP

Publication Details

  • Pages:

    17

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2003/135

  • Stock No:

    WPIEA1352003

  • ISBN:

    9781451855722

  • ISSN:

    1018-5941

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