Interest Rate Arbitrage in Currency Baskets [electronic resource] : Forecasting Weights and Measuring Risk / Peter F Christoffersen.
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TextSeries: IMF Working Papers; Working Paper ; No. 99/16Publication details: Washington, D.C. : International Monetary Fund, 1999Description: 1 online resource (30 p.)ISBN: 1451843380 :ISSN: 1018-5941Subject(s): Cointegration | Currency Basket | Equation | Exchange Rate | Exchange Rates | Statistics | ThailandAdditional physical formats: Print Version:: Interest Rate Arbitrage in Currency Baskets : Forecasting Weights and Measuring RiskOnline resources: IMF e-Library | IMF Book Store Abstract: When constructing hedged interest rate arbitrage portfolios for basket currencies, two issues arise: first, how are the unknown future basket weights optimally forecasted from past exchange rate data? And, second, how is risk-in terms of the conditional variance of expected profits from the interest rate arbitrage portfolio-appropriately measured when the basket weights are time-varying? Answers to these questions are provided within a time-varying parameter modeling framework estimated through the Kalman filter. An empirical application is devoted to the experience of the Thai baht currency basket (January 1992-February 1997).
When constructing hedged interest rate arbitrage portfolios for basket currencies, two issues arise: first, how are the unknown future basket weights optimally forecasted from past exchange rate data? And, second, how is risk-in terms of the conditional variance of expected profits from the interest rate arbitrage portfolio-appropriately measured when the basket weights are time-varying? Answers to these questions are provided within a time-varying parameter modeling framework estimated through the Kalman filter. An empirical application is devoted to the experience of the Thai baht currency basket (January 1992-February 1997).
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