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1 Mar 2013
Forex Flash: Survey shows crash expectations higher than options pricing - Societe Generale
Sebastien Galy, Senior FX Strategist at Societe Generale comments on a recent survey which shows that the 106 respondents feel that the probability of a crash in the next three months is 33% and 43% in the next 6 months.
He notes that this is much higher than what is priced into the options market over three months, while the equity market is far more fairly priced over 6 months, suggesting an arbitrage between expensive EQ tails and cheaper FX ones over that horizon. He writes, “Underpriced risks are the mix of growth and fiscal sustainability, with specific issues in Europe, the US and to a lesser extent China.”
He notes that this is much higher than what is priced into the options market over three months, while the equity market is far more fairly priced over 6 months, suggesting an arbitrage between expensive EQ tails and cheaper FX ones over that horizon. He writes, “Underpriced risks are the mix of growth and fiscal sustainability, with specific issues in Europe, the US and to a lesser extent China.”