Liquidity and Efficiency in Three Related Foreign Exchange Options Markets

Menachem Brenner, Ben Z. Schreiber

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review


Abstract The foreign currency market in a small open economy, like Israel, plays a major role in fiscal and monetary policy decisions, through its effects on the financial markets and the real economy. This has become even more evident in the recent financial crisis. In this paper we explore the relationship among three related foreign exchange options markets. The unique data set on OTC trading, on central bank options' auctions, in addition to the exchange traded ones provide us with insights about: (a) the effect of different financial infra-structures on prices, on limits to arbitrage, on their information content (forecasting volatility) and on the interrelationship between illiquidity and volatility, (b) the micro- structure interrelatedness between the FX spot market and the FX options market.
Original languageEnglish
Title of host publicationManaging and Measuring Risk
Subtitle of host publicationEmerging Global Standards and Regulations After the Financial Crisis
EditorsOliviero Roggi, Edward I. Altman
PublisherWorld Scientific.
Number of pages34
ISBN (Electronic)978-981-4417-51-8
ISBN (Print)978-981-4417-49-5
StatePublished - 2013

Publication series

NameWorld Scientific Series in Finance
ISSN (Print)2010-1082


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