Daily Exchange Rate Behaviour and Hedging of Currency Risk

Charles Bos, Ronald Mahieu and Herman van Dijk

No 01-017/4, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in the 'Journal of Applied Econometrics' , 2000, 15(6), 671-696.

We construct models which enable a decision-maker to analyze the implications oftypical timeseries patterns of daily exchange rates for currency risk management. Ourapproach is Bayesianwhere extensive use is made of Markov chain Monte Carlo methods. The effects ofseveral modelcharacteristics (unit roots, GARCH, stochastic volatility, heavy taileddisturbance densities) areinvestigated in relation to the hedging strategies. Consequently, we can make adistinctionbetween statistical relevance of model specifications, and the economicconsequences from a riskmanagement point of view. We compute payoffs and utilities from severalalternative hedgestrategies. The results indicate that modelling time varying features ofexchange rate returns maylead to improved hedge behaviour within currency overlay management.

Keywords: Bayesian decision making; econometric modelling; exchange rates; risk management; stochastic volatility; GARCH (search for similar items in EconPapers)
JEL-codes: C11 C44 E47 G15 (search for similar items in EconPapers)
Date: 2001-02-08
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://papers.tinbergen.nl/01017.pdf (application/pdf)

Related works:
Journal Article: Daily exchange rate behaviour and hedging of currency risk (2000)
Working Paper: Daily Exchange Rate Behaviour and Hedging of Currency Risk (2000)
Working Paper: Daily exchange rate behaviour and hedging of currency risk (2000)
Working Paper: Daily exchange rate behaviour and hedging of currency risk (1999)
Working Paper: Daily Exchange Rate Behaviour and Hedging of Currency Risk (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20010017

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().