An Interpretation of Czech FX Options

Currency options are interesting for market and central bank economists, because they contain information, which is independent from that provided by spot and interest rate markets. Option prices reflect the market per-ception of uncertainty incidental to the future development of the exchange rate, and therefore, they could be used for monitoring the current market sentiment. It is then natural to ask how rational this sentiment is, i.e. how much about actual future development can be predicted from option pri-ces. These issues have been studied for main currency pairs, but our article is one of the first that addresses them in the Czech koruna context. Indeed, the OTC (over-the-counter) koruna option market has been developing and expanding now for several years, and thus data time series are becoming rich enough for analytical purposes. In the first section of the article, we briefly describe the structure and his-tory of the Czech FX option market. We characterise four main categorie