The Jump Behavior of Foreign Exchange Market: Analysis of Thai Baht

We use square root stochastic volatility with or without jump model to study the heteroskedasticity and jump behavior of the Thai Baht. Bayesian factor is used to evaluate the explanatory power of competing model. It turns out that the square root stochastic volatility model with independent jump in observation and state equations (SVIJ) has the best explanatory power to our sample. Using the estimation results of the SVIJ model, we are able to link the major events of the Asian financial crisis to the jump behavior of either volatility or observation.