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This paper analyzes whether and how central banks can use currency options to lower exchange rate volatility and maintain (implicit) target zones in foreign exchange markets. It argues that selling rather than buying options will result in market makers dynamically hedging their long option exposure in a stabilizing manner, consistent with the first objective. Selling a “strangle” allows a central bank to increase the credibility of its commitment to a target zone, and could have a lower expected cost than spot market interventions. However, this strategy also exposes the central bank to an unlimited loss potential.

Banks and Banking --- Foreign Exchange --- Investments: Options --- Money and Monetary Policy --- Macroeconomics --- Central Banks and Their Policies --- International Financial Markets --- General Financial Markets: Government Policy and Regulation --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Price Level --- Inflation --- Deflation --- Finance --- Financial services law & regulation --- Currency --- Foreign exchange --- Banking --- Monetary economics --- Options --- Hedging --- Exchange rates --- Currencies --- Financial institutions --- Financial regulation and supervision --- Money --- Asset prices --- Prices --- Derivative securities --- Financial risk management --- Banks and banking --- Mexico

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Programming languages (Electronic computers) --- VHDL (Computer hardware description language). --- Semantics. --- VHDL (Computer hardware description language) --- Very High Speed Integrated Circuits Hardware Description Language (Computer hardware description language) --- VHSIC Hardware Description Language (Computer hardware description language) --- Computer hardware description languages --- Integrated circuits --- Programming language semantics --- Semantics --- Computer simulation

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Changes in the structure of the U.S. Treasury market over recent years may have increased risks to financial stability. Traditional market makers have changed their liquidity provision by increasingly switching from risk warehousing to risk distribution, and a new breed of market maker has emerged with the rise of electronic trading. The “flash rally” of October 15, 2014 provides a clear example of how those risks can materialize. Based on an in-depth analysis of the event—complementing the authorities’ work—we suggest i) providing incentives for liquidity provision, ii) improving market safeguards, and iii) enhancing the regulation of the Treasury market.

Finance: General --- Investments: General --- Investments: Futures --- Financial Markets and the Macroeconomy --- Information and Market Efficiency --- Event Studies --- Capital Budgeting --- Fixed Investment and Inventory Studies --- Corporate Finance and Governance: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Portfolio Choice --- Investment Decisions --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Finance --- Investment & securities --- Liquidity --- High frequency trading --- Futures markets --- Futures --- Treasury bills and bonds --- Asset and liability management --- Financial markets --- Financial institutions --- Economics --- Electronic trading of securities --- Derivative securities --- Government securities --- United States

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The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.

State bankruptcy. --- Asset and liability management --- Bonds --- Business and Economics --- Climate --- Communicable diseases --- Covid-19 --- Debt Management --- Debt restructuring --- Debt service --- Debt --- Debts, External --- Diseases: Contagious --- Economic & financial crises & disasters --- Economics of specific sectors --- Economics: General --- Environment --- Finance --- Financial crisis --- Financial institutions --- Financial instruments --- Financial Risk Management --- General Financial Markets: General (includes Measurement and Data) --- Global Warming --- Governmental Loans, Loan Guarantees, Credits, and Grants --- Health Behavior --- Health --- Infectious & contagious diseases --- International Lending and Debt Problems --- International Monetary Arrangements and Institutions --- Investment & securities --- Investments: Bonds --- Investments: General --- Macroeconomics --- Money and Monetary Policy --- Natural Disasters and Their Management --- Natural Disasters --- Natural disasters --- Public enterprises --- Securities --- Sovereign debt defaults --- Sovereign debt restructuring --- Sovereign Debt --- Barbados