We examine the form of heteroskedasticity in Deutsche Mark futures price data and compare different specifications of the particular way that the variance is changing over time. The martingale hypothesis is tested with daily and weekly rates of change of futures prices for the Deutsche Mark and...

This paper derives optimal hedge ratios with infrequent extreme news events modeled as common jumps in foreign currency spot and futures rates. A dynamic hedging strategy based on a bivariate GARCH model augmented with a common jump component is proposed to manage currency risk. We find...

This paper examines the relationship between currency option's implied skewness and its future realized skewness, where the difference is known as the skewness risk premium (SRP). The SRP indicates whether investors pay a premium to be insured against future crash risk. Past investigations about...

Using a vector error correction model I test whether shocks in the funding liquidity conditions in the U.S. and Europe separately explain deviations from the covered interest parity (CIP) between the U.S. Dollar and the Mexican Peso. I find that: (1) Apparent deviations from the CIP seem to be...

In this paper we consider the dynamics of spot and futures prices in the presence of arbitrage. We propose a partially linear error correction model where the adjustment coefficient is allowed to depend non-linearly on the lagged price difference. We estimate our model using data on the DAX...

The performance of dynamic trading and investment strategies can be difficult to predict. Although not without its problems, analysis of the historical performance of a strategy can provide valuable insight into its general risk and return properties. Furthermore, historical analysis allows one...

This article introduces the rough path-dependent volatility (RPDV) model, a model structurally adapted to jointly capture two major empirical features of volatility: its rough behavior and its path-dependence.After presenting it in its general form and its link with other existing models in the...

This paper considers the dynamics of spot and futures prices in the presence of arbitrage. A partially linear error correction model is proposed where the adjustment coefficient is allowed to depend non-linearly on the lagged price difference. The model is estimated using data on the DAX index...

This presentation introduces the rough path-dependent volatility model (RPDVM). After defining the model and its different components, the presentation focuses on various specifications of the RPDVM that already exist in the literature. Finally, a Markovian approximation of the model is presented

In a globalized world, the volume of international trade is based on both import and export prices, thereby making a country's economy highly dependent on exchange rates. In order to study exchange rate movements, one frequently exploits the so-called Dornbusch overshooting model. However, the...