Jump Processes in Exchange Rates Modeling

Bunčák, Tomáš (2013): Jump Processes in Exchange Rates Modeling.

Abstract

This text presents a study of various models based on jump processes in the context of foreign exchange (FX) rates modeling. Quality of FX rate log-returns fit is assessed for models such as Merton and Kou jump-diffusions, normal inverse Gaussian, variance gamma, and Meixner. The study is illustrated by simulation results that are provided for each of the models considered. Jump models are contrasted to the well-known (continuous) Brownian motion model.

• Item Type: MPRA Paper
• Language: English
• Keywords: jump processes, foreign exchange, log-returns fit, stochastic modeling
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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