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# Vincent Brousseau

- 1 May 1999
- WORKING PAPER SERIES - No. 1Details
- Abstract
- This paper proposes a forward-looking indicator of risk in the foreign exchange markets calculated from the implied volatilities of currency options according to the Garman-Kohlhagen model. We discuss the properties of such indicator and stress that it is related to a notion of risk that does not coincide with that of Gaussian risk underlying most mainstream models. We postulate that it is associated with a broader definition of risk, which we call hazard in order to avoid confusion. The properties of the Global Hazard Indicator (GHI) are assessed against the background of the market turbulence in 1998. This period has been characterized by abnormal fluctuations in the exchange rate markets spurred by a sequence of shocks in some emerging economies and in South East Asia, which have raised fear of contagion in developed countries.
- JEL Code
**F01**: International Economics→General→Global Outlook**F31**: International Economics→International Finance→Foreign Exchange

Related- 1 May 1999
- WORKING PAPER SERIES
- 1 May 1999
- WORKING PAPER SERIES

- 1 June 2001
- WORKING PAPER SERIES - No. 66Details
- Abstract
- This paper examines the predictive properties of risk indicators for the foreign exchange markets. In particular it considers the predictive properties of historical volatilities and implied volatilities for movements in various bilateral exchange rates and compares them with the analogous properties of a composite indicator of risk, the Global Hazard Index (GHI). The GHI is a function of the implied volatility derived from currency options on the three major exchange rates, i.e. the euro-US dollar, the US dollar-yen and the euro-yen. For the empirical analysis this paper employs the concept of kernel volatility, which, loosely speaking, expresses the volatility of one variable conditional on the level of another. Simple regressions show that the levels of all the indicators on a particular day have a strong link to the variance of the nominal bilateral exchange rate on the next day. A strong overall influence is displayed by the GHI, especially for the currencies of small open economies.
- JEL Code
**F01**: International Economics→General→Global Outlook**F31**: International Economics→International Finance→Foreign Exchange

- 1 November 2001
- WORKING PAPER SERIES - No. 89Details
- Abstract
- Exploiting a specific sunspot equilibrium in a standard forward-looking New Keynesian model, we present an example of a possible conflict between short-term price stability and financial stability. We find a conflict because the sunspot process consists of a self-fulfilling belief linking the stability of inflation to the smoothness of the interest rate path. A policy focusing only on a fixed-horizon inflation forecast neglects the potential effects of this belief on the variance of inflation. The nature of the conflict case is interpreted as evidence for the occasional relevance as well as the general tenuousness of the conflict case. The implementation of our example has led us, furthermore, to illustrate the lack of general applicability of the Bellman principle in dynamic programming for forward-looking models. Our result holds with respect to a more general (Nash-type) concept of optimality
- JEL Code
**C61**: Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Optimization Techniques, Programming Models, Dynamic Analysis**C62**: Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Existence and Stability Conditions of Equilibrium**E52**: Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy**E58**: Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies

- 1 May 2002
- WORKING PAPER SERIES - No. 148Details
- Abstract
- Yield curves built from liquid instruments tend to exhibit specific features, both in term of smoothness and in term of patterns. The paper presents empirical evidence that those liquid yiled curves frequently conform to a specific functional form. This specific functional form is predicted by a particular arbitrage pricing model. The paper also examines the possible interpretations of this phenomenon.
- JEL Code
**G10**: Financial Economics→General Financial Markets→General**G12**: Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates**G13**: Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing

- 25 February 2005
- WORKING PAPER SERIES - No. 439Details
- Abstract
- This paper studies frictions in the euro area interbank deposit overnight market, making use of high frequency individual quote and trade data. The aim of the analysis is to determine, in a quantitative way, how efficient this market is. Besides a comprehensive descriptive analysis, the approach used defines a measure of the friction arising for each single transaction, by which we understand an (small) initial loss accepted by a counterparty, and the corresponding gain made by the other counterparty. The evolution of total daily frictions is then put into perspective comparing it with the frictions arising if flows corresponded to the optimal solution of a "cash transportation problem". The main conclusions of this exercise are that overall frictions, although small in absolute size, tend to increase strongly whenever the overnight rate becomes volatile. Some tentative explanations for this are given, relying on the introduced methodology.
- JEL Code
**D4**: Microeconomics→Market Structure and Pricing**E52**: Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy**C61**: Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Optimization Techniques, Programming Models, Dynamic Analysis

- 22 January 2013
- WORKING PAPER SERIES - No. 1505Details
- Abstract
- In this paper we propose a new methodology to estimate the volatility of interest rates in the euro area money market. In particular, our approach aims at avoiding the limitations of currently available measures, i.e. the dependency on arbitrary choices in terms of maturity and frequencies and/or of factors other than pure interest rates, e.g. credit risk or liquidity risk. The measure is constructed as the implied instantaneous volatility of a consol bond that would be priced on the EONIA swap curve over the sample period from 4 January 1999 to 20 November 2012. We show that this measure tracks well the historical volatility, in the sense that dividing the consol excess returns by this volatility removes nearly entirely excess of kurtosis and volatility clustering, bringing them close to an ordinary Gaussian white noise.
- JEL Code
**E43**: Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects**E58**: Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies**C22**: Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes**C32**: Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes