Calculating implied rate hike probabilities of other countries

Discussion in 'Economics' started by Pluralsight, Dec 6, 2017.

  1. I would like to understand how to calculate implied rate hike probabilities for other countries other than just the US. Understanding how much a rate hike is priced in can be a useful tool (assuming of course that if it's in the futures, then it's also baked in other instruments as well, which probably is not always true).

    For the US, this link explains one way you can calculate the probability for the US:

    Now for other countries, I don't know how one can do that. For example for Canada, there are I think the OIS futures, but how it works, I am not sure. I also read some other opinions, like that you can calculate these probabilities from the forward curves, or from options. Does anyone have experience with this?
  2. There are no OIS futures in Canada. There are BOC meeting-dated OIS which are relatively liquid and active. Those are used, normally, to imply rate probabilities. And these represent OIS forward curves.

    For a variety of reasons, it's much harder to do all this with options or other instruments. Therefore, globally, with a few exceptions, CB meeting-dated OIS is the market of choice.
    happyscalpie likes this.

  3. Interesting, I hadn't realized that. Do you perhaps have a link or some primer to using the OIS data to calculate the probabilities?
  4. Actually sorry for that, it was a stupid question, there's guides out there that show how to do it.
  5. It's really quite simple (which, incidentally, is why people use these)...