1 option
How Credible is Hong Kong's Currency Peg? / Urban Jermann, Bin Wei, Vivian Yue.
- Format:
- Book
- Author/Creator:
- Jermann, Urban.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w34300.
- NBER working paper series no. w34300
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2025.
- Summary:
- This paper develops an asset-pricing model to evaluate the credibility of Hong Kong's Linked Exchange Rate System (LERS). Allowing for imperfect peg credibility, we derive closed-form solutions for exchange rates and option prices under potential regime shifts. Using HKD option data, we estimate market-implied probabilities of peg survival and the fundamental value of the HKD. Our results show that credibility fluctuates with U.S. interest rate hikes, local liquidity conditions, and Chinese currency dynamics. Compared with more standard Black-Scholes-based models, our approach provides more realistic assessments of peg sustainability.
- Notes:
- September 2025.
- Print version record
The Penn Libraries is committed to describing library materials using current, accurate, and responsible language. If you discover outdated or inaccurate language, please fill out this feedback form to report it and suggest alternative language.