In June 2014, the European Central Bank (ECB) announced the implementation of new refinancing operations aimed at supporting bank lending to the non-financial private sector. This paper exhibits and prices options embedded in these Targeted Longer-Term Refinancing Operations. In particular, it shows how these options participate to the incentive mechanisms at play in these operations. Quantitative results point to substantial gains –for participating banks– attached to the satisfaction of lending conditions defined by the scheme.
Classification JEL : E43, E52, E58
Keywords : unconventional monetary policy, option pricing, TLTRO
Updated on: 06/12/2018 11:00