The sheer existence of EUR/CHF put options with strike prices below the EUR/CHF 1.20 ﬂoor, trading at non-zero cost, challenged the full credibility of the Swiss National Bank (SNB) in enforcing the lower barrier implemented in September 6, 2011 and abandoned on January 15, 2015. We estimate the risk-neutral break probabilities of a realignment of the ﬂoor from market prices of put options, using an extension of the Veestraeten option pricing model which assumes that the underlying security price exhibits a lower barrier. We estimate probabilities considerably diﬀerent from zero, even when the exchange rate traded far above the EUR/CHF 1.20 ﬂoor. We observe a drastic increase in the break-probabilities after August 2014, reaching a level of nearly 50%. The credibility of the SNB in maintaining the ﬂoor, as seen from the option market, was thus substantially lower than publicly claimed.
currency options central banking credibility Euro/Swiss franc floor Vanna-Volga method barrier