Financial Markets' Views about the Euro-Swiss Franc Floor

Exchange rates and option prices incorporate market participants' views about the credibility and the effects of exchange rate targets. I present a model to determine exchange rates under policy targets that can be used to price options. The model is estimated with Euro-Swiss Franc exchange rate and options price data. In the first few months of the minimum exchange rate policy, the implied survival probability of the policy for a 3-month horizon was typically less than 75%. Over time, the credibility increased and this probability reached 95% in August 2014.