Tag Archives: Break probability

“On the Credibility of the Euro/Swiss Franc Floor: A Financial Market Perspective”

Markus Hertrich and Heinz Zimmermann argue in a working paper that after August 2014, financial markets priced in a significant probability that the Swiss National Bank would abolish the exchange rate floor vis-a-vis the Euro. Hertrich and Zimmermann write in the abstract:

We observe a drastic increase in the break-probabilities after August 2014, reaching a level of nearly 50%, which was the level before the announcement of the details of the “Draghi put” in September 2012. The credibility of the SNB in maintaining the floor, as seen from the option market, was thus substantially lower than publicly claimed.