EUR/CHF’s 2015 Peg Removal and the Limits of Risk Forecasting
Summary
The document explains the sharp EUR/CHF move on January 15, 2015, when the Swiss National Bank abandoned its minimum exchange rate against the euro. It describes the floor as a policy intended to limit franc appreciation, and says the bank had maintained it by buying euros and issuing francs. The answers connect the decision to concerns about the sustainability of that policy as the European Central Bank prepared to announce quantitative easing.
The account emphasizes that the change was unexpected and that respondents knew of no advance warning to market participants. It cites losses and stress among banks exposed to Swiss franc loans, and notes that the event affected the FX options market. The original question also asks about volatility forecasts contaminated by outliers, but the responses do not analyze forecast models, quantify the shock, or offer a method for handling outliers. The discussion is therefore useful as a case study in policy and event risk, not as a practical forecasting guide.
Key ideas
- The Swiss National Bank ended its minimum EUR/CHF exchange rate on January 15, 2015.
- The policy had been defended by absorbing euros and creating francs.
- The respondents describe the move as unannounced and unexpected by market participants.
- Borrowers and financial institutions with Swiss franc exposure suffered losses or stress.
- The discussion raises volatility forecasting after extreme events but does not assess specific methods.
Tags
Full text
# EUR/CHF fx rate drop on the 15th of January 2015 # EUR/CHF fx rate drop on the 15th of January 2015 I was playing around with some fx rates and what caught my attention was the sudden drop of the fx rate EUR/CHF at the 15th of January 2015 4:00 - 5:00 am EST. What really happened that day? Was there any prior information directed towards traders and market makers in the context of qualitative risk management to avoid heavy looses? Is there any paper that describes the situation and how biased the volatility forecasts can be from the outliers pollution ? ## Answer by Jan Sila (score 7, accepted) https://quant.stackexchange.com/a/29695 What happened was totally unexpected end of peg against the euro @ 1.2CHF regime that Swiss central bank aborted. See some articles about it. As far as I know nobody in the markets knew, there was no indication whatsoever.. In terms of management, I'm afraid lots of people got heavy losses, particularly banks (Austria, Poland, Hungary) - lots of Swiss loans that got shockingly higher instalments overnight (by 20%) caused serious stress to portfolios of banks. See for instance this good article. or google around this, to get more info - you can set google to look for content only at the beginning of 2015. Regarding academia, there does not seem to be anything particularly interesting: https://scholar.google.com/scholar?as_ylo=2015&q=swiss+franc+unpegging&hl=cs&as_sdt=0,5 Regarding volatility forecasting, this would depend on your model, so hard to give a specific answer to that.. ## Answer by wchyk-cyw (score 2) https://quant.stackexchange.com/a/29722 The SNB took away the 1.2000 EURCHF floor it has kept for 2+ years without any prior warning to the market. The floor was initially introduced to keep Swiss Franc from strengthening due to buying demand from a troubled Euro Zone, and being an export economy. The Swiss National Bank had to defend its currency by absorbing Euro and keep on printing Francs. When the ECB, the European Central Bank, was about to announce its own QE programme, the SNB didn't see this as sustainable and threw in the towel and eventually let the market decide where the exchange rate should be. And after that event, the FX Options market has never been the same again...
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