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Option Prices, Exchange Market Intervention, and the Higher Moment Expectations Channel: A User’s Guide


This paper investigates how market structure affects efficiency and several dimensions of liquidity in an asset market. To this end, we generalize the search-theoretic model of financial intermediation of Darrell Duffie et al. (2005) to allow for entry of dealers and unrestricted asset holdings.

JEL code: F3, G15

Keywords: exchange rate intervention, monetary policy, risk-neutral probability density function


Suggested citation: Galati, Gabriele, Patrick Higgins, Owen F. Humpage, and William Melick, 2006. "Option Prices, Exchange Market Intervention, and the Higher Moment Expectations Channel: A User’s Guide," Federal Reserve Bank of Cleveland, Working Paper no. 06-18.

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