SWARCH and the implicit volatility of the Real/USD exchange rate
Rafael Machado Santana () and
Rodrigo De Losso da Silveira Bueno ()
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Rafael Machado Santana: Instituto de Pesquisas Econômicas (IPE), USP
Rodrigo De Losso da Silveira Bueno: EAESP/FGV
Authors registered in the RePEc Author Service: Rodrigo De-Losso
Brazilian Review of Finance, 2008, vol. 6, issue 2, 235-265
This paper evaluates empirically the volatility prediction and the informational content of the exchange rate variation. The comparison is built on two different models. The rst is a markov switching model on the conditional variance – SWARCH (Hamilton, 1994). The second model is based on the Garman e Kohlhagen (1983) option pricing model, from which one extracts the implicit volatility. The results show that the SWARCH’s performance is better in both dimensions and contrast with the literature in two aspects: rst because the model with switching regime is not as usual as the ones without it, second because the best model is based on historical data rather than implicit volatility.
Keywords: SWARCH; regime switching; persistance; implicit volatility (search for similar items in EconPapers)
JEL-codes: C52 G12 G13 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:6:y:2008:i:2:p:235-265
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