In September 2011 new legislation allowed Hungarian households, under certain conditions, to repay their foreign-currency-denominated mortgages at preferential, predetermined exchange rates. This created an open foreign currency position of significant but uncertain size on the balance sheet of...

Market analysts and central banks often use the implied volatility of FX options as an indicator of expected exchange rate uncertainty. The aim of our study is to investigate the limits of this statistic. We present some key factors that may deviate the value of implied volatility from the...