ECB Gaps Pricing: A Quantitative Framework

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ECB Gaps Pricing: A Quantitative Framework

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Exhibit 3: Market pricing for future meetings has reflected Exhibit 4: … and this pattern was consistent across the curve,

lower expectations for non-forecast meetings ... as for example for the third-next meeting ...

140 160

Median log ratio = -0.52 Median log ratio = -0.42

Median ratio = 0.59 140 Median ratio = 0.66 120

20 20

0 0

-3 -2 -1 0 1 2 3 -3 -2 -1 0 1 2 3

(Log) Ratio 1-3 (Log) Ratio 2-4

Source: Bloomberg, Morgan Stanley Research. Note: Chart shows the distribution of the logged ratio R, Source: Bloomberg, Morgan Stanley Research. Note: Chart shows the distribution of the logged ratio R,

where R is the size of the rate move priced for the second next meeting divided by the average of the where R is the size of the rate move priced for the third next meeting divided by the average of the moves

moves priced for the meetings immediately before and after it. Each move is the absolute basis-point priced for the meetings immediately before and after it. Each move is the absolute basis-point change

change read off the convexity-adjusted OIS meeting curve. Sample for this chart only includes dates were read off the convexity-adjusted OIS meeting curve. Sample for this chart only includes dates were the

the second next meeting was a non-forecast meeting. third next meeting was a non-forecast meeting.

Exhibit 5: … the fourth-next meeting ... Exhibit 6: … and the fifth-next meeting

120 140

Median log ratio = -0.58 Median log ratio = -0.46

Median ratio = 0.56 Median ratio = 0.63

120 100

(Log) Ratio 3-5 (Log) Ratio 4-6

where R is the size of the rate move priced for the fourth next meeting divided by the average of the where R is the size of the rate move priced for the fifth next meeting divided by the average of the moves