Predicting foreign currency exchange rates using the numerical solution of the incompressible Navier–Stokes equations

Kartono, Agus Priyono; Febriyanti, Marina; Wahyudi, Setyanto Tri; Irmansyah,

doi:10.1016/j.physa.2020.125191

“…In the era of globalisation, exchange rates directly affect the operation of corporations, enterprises and individual investors (Markova, 2019). Many consider the exchange rate as a factor reflecting the current situation and condition of a given country's economy (Kartono et al, 2020). In this context, the most significant currency pairs are USD/EUR, GBP/EUR and CHF/EUR.…”

Section: Introductionmentioning

confidence: 99%

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2023

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In financial applications, understanding the asset correlation structure is crucial to tasks such as asset pricing, portfolio optimisation, risk management, and asset allocation. Thus, modelling the volatilities and correlations of multivariate stock market returns is of great importance.This paper proposes the iterated filtering algorithm for estimating the bivariate stochastic volatility model of Yu and Meyer. The iterated filtering method is a frequentist-based approach that utilises particle filters and can be applied to estimating the parameters of non-linear or non-Gaussian state-space models.The paper presents an empirical example that demonstrates the way in which the proposed estimation method might be used to estimate the correlation between the returns of two assets: Standard and Poor's 500 index and the price of gold in US dollars. This is accompanied by a simulation study that proves the validity of the approach.

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“…In the era of globalisation, exchange rates directly affect the operation of corporations, enterprises and individual investors (Markova, 2019). Many consider the exchange rate as a factor reflecting the current situation and condition of a given country's economy (Kartono et al, 2020). In this context, the most significant currency pairs are USD/EUR, GBP/EUR and CHF/EUR.…”

Section: Introductionmentioning

confidence: 99%