Modeling Exchange Rate Volatility Dynamics of the Great Britain Pound to Ethiopian Birr Using the Semi-Parametric Non-Linear Fuzzy-EGARCH-ANN Model

Abstract

In this paper, a robust analysis of volatility forecasting of the GBP-ETB exchange rate was provided using weekly data spanning the period June 30, 2003-January 24, 2020. To our knowledge, this was the first study that focuses on the GBP-ETB exchange rate using high-frequency data and the Fuzzy-EGARCH-ANN econometric model. The research finds that the best performing model in terms of one-step ahead forecasts based on realized volatility computed from the underlying daily data series is the Fuzzy-EGARCH-ANN(1, 2, 2, 1) with students t-distribution.

Model Calibration and Validation for the Fuzzy-EGARCH-ANN Model

“…Its accuracy depends upon some user-provided inputs like the number of iterations, population size, and so on. e recommended amount of iteration for JADE is 500, and the population size is between 5D and 10D, where D is the dimension of the given parameter space of the fuzzy-EGARCH-ANN model [18,21,22]. Regarding the recommended number of iterations and population size employed, the JADE with Archive algorithm can provide us globally optimum parameters of the fuzzy-EGARCH-ANN model.…”