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Impact of COVID-19 Turmoil on the Foreign Exchange Option Market: Evidence from the Japanese OTC Derivative Transaction Data

August 17, 2022
TAKIZUKA Yasutaka*1, SUZUKI Kazuya*2
Financial Markets Department

  1. *1Currently at the Financial System and Bank Examination Department
  2. *2Currently at the Secretariat of the Policy Board

This report investigates granular transaction data for USD/JPY options, focusing on the individual transactions around March 2020 in order to visualize the impact of the COVID-19 pandemic on the market. The main results are as follows. First, through March 2020, entity-level implied volatility indicates that the market perception about Foreign Exchange (FX) risk was widely dispersed, and liquidity in the FX option market dropped. Second, under such market conditions, prices of large-size put options, which are used for hedging yen appreciation risk, were especially higher than usual, and market participants seemed to deal with the price hike by breaking trades into smaller blocks and diversifying their counterparties.


Bank of Japan Review is published by the Bank of Japan to explain recent economic and financial topics for a wide range of readers. This report, 2022-E-6, is a translation of the original Japanese version, 2022-J-10, published in June 2022.

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