Forecasting and Hedging in the Foreign Exchange Markets (eBook)

Foreword 6
Preface 7
Acknowledgements 9
Contents 10
Acronyms 14
Part I Introduction 16
Chapter 1 Motivation 17
Chapter 2 Analytical Outlook 21
2.1 Foreign Exchange Market Predictability 21
2.2 Exchange Rate Forecasting with Support Vector Machines 22
2.3 Exchange Rate Hedging in a Simulation/Optimization Framework 24
Part II Foreign Exchange Market Predictability 27
Chapter 3 Equilibrium Relationships 28
3.1 Purchasing Power Parity Theorem 28
3.2 Interest Rate Parity (IRP) Theorem 34
Chapter 4 Market Efficiency Concepts 39
4.1 Informational Efficiency 39
4.2 Speculative Efficiency 40
Chapter 5 Views from Complexity Theory 41
5.1 Introduction 41
5.2 Calculating Fixed Point Market Equilibrium 44
5.3 Computational Difficulties with Efficiency 47
Chapter 6 Conclusions 50
Part III Exchange Rate Forecasting with Support Vector Machines 51
Chapter 7 Introduction 52
Chapter 8 Statistical Analysis of Daily Exchange Rate Data 55
8.1 Time Series Predictability 55
8.2 Empirical Analysis 55
Chapter 9 Support Vector Classification 72
9.1 Binary Classification Problem (BCP) 72
9.2 On the Computational Complexity of the BCP 72
9.3 Supervised Learning 74
9.4 Structural Risk Minimization 76
9.5 Support Vector Machines 78
Chapter 10 Description of Empirical Study and Results 90
10.1 Explanatory Dataset 90
10.2 SVM Model 96
10.3 Sequential Minimization Optimization (SMO) Algorithm 96
10.4 Kernel Selection 98
10.5 Cross Validation 101
10.6 Benchmark Models 102
10.7 Evaluation Procedure 104
10.8 Numerical Results and Discussion 106
Part IV Exchange Rate Hedging in a Simulation/Optimization Framework 111
Chapter 11 Introduction 112
Chapter 12 Preferences over Probability Distributions 121
12.1 Currency Hedging Instruments 121
12.2 Formal Relationship Between Firm and Capital Market Expectations 126
12.3 Specification of Probability Distribution Function 127
12.4 Expected Utility Maximization and Three-Moments Ranking 128
12.5 Specification of Utility Function 133
Chapter 13 Problem Statement and Computational Complexity 136
13.1 Problem Statement 136
13.2 Computational Complexity Considerations 138
Chapter 14 Model Implementation 144
14.1 Simulation/Optimization 144
14.2 Simulation Model 145
14.3 Optimization Model 155
Chapter 15 Simulation/Optimization Experiments 165
15.1 Practical Motivation 165
15.2 Model Backtesting 165
15.3 Results 175
Part V Contributions of the Dissertation 182
Chapter 16 Exchange Rate Forecasting with Support Vector Machines 183
Chapter 17 Exchange Rate Hedging in a Simulation/Optimization Framework 185
Part VI References 189
References 190