HIPERFIT Seminar Talk: Analyzing the Swiss National Bank’s euro exchange rate policy: A latent likelihood approach

Presenter: Rolf Poulsen, Professor, IMF/University of Copenhagen

Time: Tuesday, October 27, 2015, 15:15-16:00

Place: AUD 7 (HCØ, Universitetsparken 5)


Between September 6, 2011 and January 15, 2015 the Swiss National Bank (SNB’s) acted in order to enforce their guarantee that the CHFEUR exchange rate (i.e. the no. Swiss francs needed to buy one euro) would be above 1.20. In this paper we view that guarantee as a put option and apply a latent likelihood estimation approach to infer the market’s view of the credibility of the SNB’s guarantee, where the exchange rate would be without the guarantee as well CHFEUR-volatility. Our model tracks general market volatility well, is quite accurate in its prediction for where the exchange rate would jump on the removal date January 15, 2015 and shows that the market’s confidence in the SNB’s guarantee declined sharply in months up the removal. In short, the events of January 15 were unexpected, but not that unexpected.

Based on joint work with Michael Hanke and Alex Weissensteiner.


Rolf Poulsen is Professor at the Department of Mathematical Sciences.

Host: Martin Elsman


27 October 2015