Continuous time regime switching model applied to foreign exchange rate.

Abstract : Modified Cox-Ingersoll-Ross model is employed, combining with Hamilton (1989) type Markov regime switching framework, to study foreign exchange rates, where all parameter values depend on the value of a continuous time Markov chain. Basing on real data of some foreign exchange rates, the Expectation-Maximization algorithm is extended to this more general model and it is applied to calibrate all parameters. We compare the obtained results regarding to results obtained with non regime switching models and notice that our results match much better the reality than the others without Markov switching. Furthermore, we illustrate our model on various foreign exchange rate data and clarify some significant eco- nomic time periods in which financial or economic crisis appeared, thus, regime switching obtained.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [42 references]  Display  Hide  Download

https://hal.archives-ouvertes.fr/hal-00643900
Contributor : Stéphane Goutte <>
Submitted on : Monday, January 23, 2012 - 11:16:23 AM
Last modification on : Tuesday, May 14, 2019 - 11:01:28 AM
Long-term archiving on: Wednesday, December 14, 2016 - 12:21:46 AM

File

RSFX_ZG_21_Jan.pdf
Files produced by the author(s)

Identifiers

  • HAL Id : hal-00643900, version 2

Citation

Stéphane Goutte, Benteng Zou. Continuous time regime switching model applied to foreign exchange rate.. 2012. ⟨hal-00643900v2⟩

Share

Metrics

Record views

597

Files downloads

2102