Ullrich Forecasting and Hedging in the Foreign Exchange Markets

2009
ISBN: 978-3-642-00495-7
Verlag: Springer
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, Band 623, 207 Seiten

Reihe: Lecture Notes in Economics and Mathematical Systems

Historical and recent developments at international ?nancial markets show that it is easy to loose money, while it is dif?cult to predict future developments and op- mize decision-making towards maximizing returns and minimizing risk. One of the reasons of our inability to make reliable predictions and to make optimal decisions is the growing complexity of the global economy. This is especially true for the f- eign exchange market (FX market) which is considered as one of the largest and most liquid ?nancial markets. Its grade of ef?ciencyand its complexityis one of the starting points of this volume. From the high complexity of the FX market, Christian Ullrich deduces the - cessity to use tools from machine learning and arti?cial intelligence, e.g., support vector machines, and to combine such methods with sophisticated ?nancial mod- ing techniques. The suitability of this combination of ideas is demonstrated by an empirical study and by simulation. I am pleased to introduce this book to its - dience, hoping that it will provide the reader with interesting ideas to support the understanding of FX markets and to help to improve risk management in dif?cult times. Moreover, I hope that its publication will stimulate further research to contribute to the solution of the many open questions in this area.

Autoren/Hrsg.

Ullrich, Christian

Inhaltsverzeichnis

1;Foreword;6
2;Preface;7
3;Acknowledgements;9
4;Contents;10
5;Acronyms;14
6;Part I Introduction;16
6.1;Chapter 1 Motivation;17
6.2;Chapter 2 Analytical Outlook;21
6.2.1;2.1 Foreign Exchange Market Predictability;21
6.2.2;2.2 Exchange Rate Forecasting with Support Vector Machines;22
6.2.3;2.3 Exchange Rate Hedging in a Simulation/Optimization Framework;24
7;Part II Foreign Exchange Market Predictability;27
7.1;Chapter 3 Equilibrium Relationships;28
7.1.1;3.1 Purchasing Power Parity Theorem;28
7.1.2;3.2 Interest Rate Parity (IRP) Theorem;34
7.2;Chapter 4 Market Efficiency Concepts;39
7.2.1;4.1 Informational Efficiency;39
7.2.2;4.2 Speculative Efficiency;40
7.3;Chapter 5 Views from Complexity Theory;41
7.3.1;5.1 Introduction;41
7.3.2;5.2 Calculating Fixed Point Market Equilibrium;44
7.3.3;5.3 Computational Difficulties with Efficiency;47
7.4;Chapter 6 Conclusions;50
8;Part III Exchange Rate Forecasting with Support Vector Machines;51
8.1;Chapter 7 Introduction;52
8.2;Chapter 8 Statistical Analysis of Daily Exchange Rate Data;55
8.2.1;8.1 Time Series Predictability;55
8.2.2;8.2 Empirical Analysis;55
8.3;Chapter 9 Support Vector Classification;72
8.3.1;9.1 Binary Classification Problem (BCP);72
8.3.2;9.2 On the Computational Complexity of the BCP;72
8.3.3;9.3 Supervised Learning;74
8.3.4;9.4 Structural Risk Minimization;76
8.3.5;9.5 Support Vector Machines;78
8.4;Chapter 10 Description of Empirical Study and Results;90
8.4.1;10.1 Explanatory Dataset;90
8.4.2;10.2 SVM Model;96
8.4.3;10.3 Sequential Minimization Optimization (SMO) Algorithm;96
8.4.4;10.4 Kernel Selection;98
8.4.5;10.5 Cross Validation;101
8.4.6;10.6 Benchmark Models;102
8.4.7;10.7 Evaluation Procedure;104
8.4.8;10.8 Numerical Results and Discussion;106
9;Part IV Exchange Rate Hedging in a Simulation/Optimization Framework;111
9.1;Chapter 11 Introduction;112
9.2;Chapter 12 Preferences over Probability Distributions;121
9.2.1;12.1 Currency Hedging Instruments;121
9.2.2;12.2 Formal Relationship Between Firm and Capital Market Expectations;126
9.2.3;12.3 Specification of Probability Distribution Function;127
9.2.4;12.4 Expected Utility Maximization and Three-Moments Ranking;128
9.2.5;12.5 Specification of Utility Function;133
9.3;Chapter 13 Problem Statement and Computational Complexity;136
9.3.1;13.1 Problem Statement;136
9.3.2;13.2 Computational Complexity Considerations;138
9.4;Chapter 14 Model Implementation;144
9.4.1;14.1 Simulation/Optimization;144
9.4.2;14.2 Simulation Model;145
9.4.3;14.3 Optimization Model;155
9.5;Chapter 15 Simulation/Optimization Experiments;165
9.5.1;15.1 Practical Motivation;165
9.5.2;15.2 Model Backtesting;165
9.5.3;15.3 Results;175
10;Part V Contributions of the Dissertation;182
10.1;Chapter 16 Exchange Rate Forecasting with Support Vector Machines;183
10.2;Chapter 17 Exchange Rate Hedging in a Simulation/Optimization Framework;185
11;Part VI References;189
12;References;190