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Many authors emphasize the importance of market structure in the definition of financial fragility; however, a study estimating the degree of completeness and heterogeneity of specific markets is still missing. In this paper, we address this issue. The paper contributes to the contagion literature by proposing measures of completeness and concentration degrees or heterogeneity amongst financial markets. Besides the essentially methodological contribution, we present some empirical results for the Brazilian interbank market.

This article examines the relation between dollar-real exchange rate volatility implied in option prices and subsequent realized volatility. It investigates whether implied volatilities contain information about volatility over the remaining life of the option that is not present in past returns. Using Generalized Method of Movements [GMM] estimation consistent with telescoping observations evidence suggests that implied volatilities give superior forecasts of realized volatility if compared with Generalized Autoregressive Conditional Heteroskedasticity [GARCH] (p, q) and moving average predictors. Besides, econometric models do not add significant information to that contained in implied volatilities.

This paper employs a recently developed parametric technique to obtain density forecasts for the Brazilian exchange rate, using the exchange rate options market. Empirical results suggest that the option market contains useful information about future exchange rate density. These results suggests that density forecasts using options markets may add value for portfolio and risk management, and may be useful for financial regulators to assess financial stability.