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Working Paper

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

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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.
12.04.2006ISSN 2573-7953 WP 06-18DOI 10.26509/frbc-wp-200618
Keywords exchange rate intervention, monetary policy, risk-neutral probability density function
JEL Classification Codes F3, G15

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Galati, Gabriele, Owen F. Humpage, Patrick Higgins, 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. https://doi.org/10.26509/frbc-wp-200618