A research report submitted to the Faculty of Science, University of the Witwatersrand, Johannesburg, South Africa, in partial fulfillment of the requirements for the Degree of Masters of Science. / Owing to the complexity of hedging against the unfavourable price movements, derivatives came into being to solve this problem if used in an effective and appropriate manner. Movements in share or stock prices, foreign exchange rates, interest rates, etc., make it difficult to anticipate or guess the next price or exchange rate or interest rates. Hence hedging ones'self against these movements becomes a hurdle that is difficult to overcome. Coming to the fore of the derivatives markets made a relief to many traders, but still then, no one could be certain about the move of the market which he is trading in. Forecasting appeared as an educated guess as to which direction and by how much the market will move. This research report focusses on how to forecast the foreign exchange rates using the Dollar/Rand as an example. I have gathered the historical daily data for the DoIIar/Rand spot rates which includes the mayhem period that happened in February 1996. The data was obtained from one of the biggest banks of South Africa; it was drawn from the Reuters historical data giving the open, high, low and close prices of the Dollar/Rand (USD/ZAR) spot rates. The data was then downloaded and copied to the spreadsheet for the calculation of the historical volatilities for different periods. To have a genuine comparison with the implied volatilities, a data of historical implied volatilities tor approximately the same period was gathered from the SAIMB (South African International Money Brokers). The only snag with the data was that it only catered for specific traded periods, like 1 month, 2 months, 3 months, 6 months, 9 months and 12 months only. Most financial institutinns are using these implied volatilities for their pricing and end-of-day or -month or -year revaluation. By the same token the data was downloaded to the spreadsheet for further analysis and arrangement. Chapter 1 gives the purpose and the meaning of'forecasting, together with different methods that this process can be achieved. Views from Makridakis et al., (1983) are used to beautify the world of forecasting and its importance. In Chapter 2 the concept of volatility and its causes, is discussed in detail. Besides the implied and historical volatility discussions, volatility 'smile' concept is discussed and expanded. Volatility slope trading strategies and constraints on the slope of the volatility term structure are discussed in detail. Chapter 3 discusses different models used to calculate both the historical and the implied volatility. This includes models by Kawaller et al., (1994) and Figlewski et al., ( 1990). The Newton-Raphson method is among of the methods that can be used to get a good estimate of the implied volatility. For a lot accurate estimates the Method of Bisection can be used in place of the Newton-Raphson method. Mayhew (1995) even suggest a method, which involves the use of more weighting with higher vegas (Latane and Rendleman 1976) or weighting not by vegas but elasticity (Chiras and Manaster 1978). Chapter 4 dwells on different forecasting models for foreign exchange markets. This includes models by Engle (1993), who is one of the pioneers of the autoregression theory, He discusses the ARCH, GARCH and EGARCH models; Heynen et al., (1994,1995) discusses the models for the term structure of volatility implied by foreign exchange. In the 1995 article he dwells on the specifications of the different autoregressive conditional heteroskedastic models. U.A. Muller et al., (1990,1993) discusses some of the models for the changing time scale for short-term forecasting in financial markets. This includes discussion of some statistical properties of FX rates time-series. Xu and Taylor (1994) also discuss the term structure of volatility as implied, in particular, by FX options. Regression is used in computation of implied volatility Chapter 5 dwells on the empirical evidence and the market practice. This includes the statistical analysis of the data; applying the scaling law; proprietary model which depicts the edge between the historical volatility and implied volatility; empirical tests and the volatility forecast evaluation applied to historical USD/ZAR daily data, using different models. In the statistical analysis, using U.A. Muller et al., (1993) theory, the scaling law, which involves the absolute price changes, which are directly related to the interval At, is discussed. Using my GSD/ZAR data Imanaged to calculate the parameters described by the scaling law, using At as one day since my data is a daily data Icould not calculate the activity model function, which calculates the intra-day and intra-hour trading using tick-by-tick data, because of the nature of my data. Had it not been the case, f would have been able to calculate the intra-day and intra-hour volatilities. These statistics would have been able to depict the daily volatility, more especially on volatile days, like the day when the Rand took its first knock in February 1996. In the second section of the chapter the proprietary model is discussed, where an edge between the actual volatility and implied volatility was identified. There is a positive correlation between the actual and implied volatility although the latter is always higher than the former; hence traders can play with this situation for arbitrage purposes. To get the estimates of historical volatility, I used the Well-known formula of using the log-relatives of the returns of any two consecutive days. Annnalised standard deviation of these log-relatives resulted into the required historical volatility estimates. Moving averages were used to get estimates of different periods, as can be seen in the text. The main theme of the research report is to expose forecasting models that can be used in foreign exchange currencies using DolIar/Rand as an example. Random walk model was used as benchmark to other models like stochastic volatility, ARCH, GARCH( 1,1), and EGARCH (1,1). Due to the complexity of the specifications of these models, I used the SHAZAM 7.0 econometric program to generate the necessary parameters. Complex formulas of these models are given in the Appendices at the end of the report, together with the program itself. The significance of the forecasted volatility estimates was checked using the p-value correlation statistic and the Akaike Information Criterion (AIC). The p-value gives us the significance of the parameters and the AlC gives us an indication of the goodness-of-fit of the model. The formulas used to calculate these statistics are given at the end of the report as part of the Appendices. An account of where and how shese results can be of help in the practical situation is given under the section of market practice. One of the areas worth mentioning is in risk management, where estimates of the historical volatility can be used together with correlation in risk-metrics to calculate VArt (value-at-risk). VAR is defined in simple terms as the 5thpercentile (quantile) of the distribution of value changes. The beau.y of working with the percentile rather than, say the variance of a distribution, is that a percentile corresponds to both a magnitude e.g., dollar amount at risk, and exact probability e.g., the probability that the magnitude will not be exceeded. This roughly the gist of the research report. / Andrew Chakane 2018

No description available.

Part I of this thesis is concerned with providing an explanation for the absence of an international monetary agreement since the breakdown of the Bretton Woods system. The analysis centers around the proposition that the potential gains are not sufficiently large to induce countries to engage in cooperative exchange rate management. The analysis is undertaken in the context of a two country model in which the monetary authorities of each country intervene in the foreign exchange market with the objective of stabilizing domestic consumption and prices. Non-cooperative behaviour is characterized in terms of the equilibrium intervention strategies associated with Cournot and Stackelberg games, as well as a game in which each player correctly anticipates the responses of his opponent; the principal form of cooperative behaviour considered is the agreement to participate in joint loss minimization. The results of the numerical simulations, used to compare the losses associated with cooperative and non-cooperative intervention strategies, support the proposition that countries behave non-cooperatively because the gains from policy coordination are too small to extract a cooperative effort. The primary objective of Part II is to formulate a quantitative measure of exchange market intervention that- can be used to classify exchange rate practices and to conduct empirical studies of exchange rate policy. The measure that is proposed in this study is an index of exchange market intervention which characterizes exchange rate policy as the proportion of exchange market pressure that is alleviated by an endogenous change in the domestic money supply. Exchange market pressure is measured using a model-consistent generalization of the Girton and Roper (1977) formulation. In order to provide a basis of comparison for future empirical work, the proposed measures of exchange market pressure and exchange market intervention are calculated quarterly for Canada, Germany, Japan, United Kingdom, and the United States over the period 1973(I) - 1984(IV). Estimates are obtained for each country on the basis of a multiple-partner small open economy model as well as a model in which interdependence among trading partners is explicitly incorporated. / Arts, Faculty of / Vancouver School of Economics / Graduate

No description available.

by To Kwok-Fai. / Thesis (M.B.A.)--Chinese University of Hong Kong, 1992. / Includes bibliographical references (leaves 83-84). / ABSTRACT --- p.ii / ACKNOWLEDGEMENTS --- p.iii / TABLE OF CONTENTS --- p.iv / LIST OF ILLUSTRATIONS --- p.vi / LIST OF TABLES --- p.viii / Chapter / Chapter I. --- INTRODUCTION --- p.1 / Chapter II. --- THE GROWTH AND CHANGING CHARACTER OF THE FOREIGN EXCHANGE MARKET --- p.3 / Three Economic Blocs --- p.3 / Increase of Trading Volume --- p.4 / Shift In Customer Base --- p.5 / Twenty-four Hours Global Market --- p.5 / Growth in the Use of Computer --- p.6 / Chapter III. --- FORECASTING OF FOREIGN EXCHANGE RATE --- p.7 / Efficient Market Hypothesis and Random Walk Theory --- p.7 / The Hypothesis --- p.7 / Implications --- p.9 / Chaos Theory --- p.9 / Definition --- p.9 / Phenomena in Foreign Exchange Market --- p.9 / Implications --- p.12 / Fundamental Analysis in Forecasting Foreign Exchange Rate --- p.12 / Technical Analysis in Forecasting Foreign Exchange Rate --- p.15 / Other Factors Influencing Foreign Exchange Rate --- p.17 / Chapter IV. --- METHODOLOGY --- p.18 / Collection of Data --- p.18 / Selection of Trading Systems --- p.20 / Construction of Trading Systems --- p.21 / Simple Moving Average Trading System --- p.21 / Directional Movement Index Trading System --- p.22 / Evaluation of Trading Performance --- p.27 / Chapter V. --- RESULTS AND FINDINGS --- p.30 / Simple Moving Average Trading System --- p.30 / Directional Movement Index Trading System --- p.40 / Comparison of the Two Trading Systems --- p.50 / Current Net Profit or Loss --- p.50 / Sample Standard Deviation --- p.52 / Sharpe Ratio --- p.52 / Ratio of Average Profit per Profitable Transaction to Average Loss per Losing Transaction --- p.55 / Chapter VI. --- CONCLUSIONS --- p.57 / APPENDIX / Chapter 1. --- Program Listing of Simple Moving Average Trading System Performance Report --- p.59 / Chapter 2. --- Program Listing of Directional Movement Index Trading System Performance Report --- p.63 / Chapter 3. --- "Detailed Listing of USD/DEM High, Low and Close Exchange Rate from Oct 18 1988 to Dec 31 1991" --- p.67 / BIBLIOGRAPHY --- p.83

Ip Tak Sang. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2006. / Includes bibliographical references (leaves 65-67). / Abstracts in English and Chinese. / Chapter Chapter 1 --- Introduction --- p.1 / Chapter Chapter 2 --- Data and Methodology --- p.4 / Chapter Chapter 3 --- Results / Chapter 3.1 --- Performance of Long/Short Strategies --- p.11 / Chapter 3.2 --- Subsample and Sensitivity Analysis --- p.17 / Chapter 3.3 --- Autocorrelation Analysis --- p.25 / Chapter Chapter 4 --- Discussion and Conclusion --- p.27 / Appendices / Chapter A.1 --- Exchange Rates Figures --- p.28 / Chapter A.2 --- Tables --- p.32 / References --- p.65

Thesis. 1978. Ph.D.--Massachusetts Institute of Technology. Dept. of Economics. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Bibliography: leaves 105-109. / Ph.D.

在現今的社會，協整技術已被廣泛應用於金融和計量經濟領域，特別用於構建股票市場的統計套利策略。在這一篇論文中，我們主要考察在衍生品市場中，基於協整技術的套利交易策略，這一策略的主要研究對象是隱含波動率。利用隱性波動率的線性組合的均值回歸的特性，通過配對兩隻帶有正利差(如theta) 的短期平價歐式跨式期權來獲利。同時，構建實際波動率的模型和預測未來實際波動率的模型將會用於補充這一交易策略的不足，隱性一實際條件和Gamma-Vega條件被引入來提高交易策略的效率。這一策略的績效分析是基於三年的歷史外匯期權數據。從實證數據中，基於協整技術的策略能賺取利潤，而且Vega在利潤中起著重要的作用，並且無論是隱性一實際條件還是Gamma-Vega條件都是有效的。 / The notion of cointegration has been widely used in finance and econometrics, in particular in constructing statistical arbitrage strategies in the stock market. In this thesis, an arbitrage trading strategy for derivatives based on cointegration is studied to account for the volatility factor. Pairs of short dated at-the-money straddles of European options with positive net carry (i.e. theta) are used to capture the mean-reverting property of the linear combinations of implied volatilities. Furthermore, modeling and forecasting realized volatility are also considered as a supplement to the trading strategy. Implied-Realized Criertion and Gamma-Vega Criterion are introduced to improve the trading strategy. A performance analysis is conducted with a 3-year historical data of Foreign Exchange Options. From the empirical results, the portfolio based on the cointegration strategy makes a profit, where Vega plays a dominant role, and either the Implied-Realized Criertion or the Gamma-Vega Criterion is effective. / Detailed summary in vernacular field only. / Pun, Lai Fan. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2013. / Includes bibliographical references (leaves 43-45). / Abstracts also in Chinese. / List of Tables --- p.v / List of Figures --- p.vi / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Basic Ideas --- p.4 / Chapter 2.1 --- Cointegration and Johansen’s Methodology --- p.4 / Chapter 2.1.1 --- Cointegration --- p.4 / Chapter 2.1.2 --- Johansen’s Methodology --- p.5 / Chapter 2.2 --- Cointegration Pairs Trading Strategy --- p.6 / Chapter 2.3 --- Modelling and Forecasting Realized Volatility --- p.8 / Chapter 3 --- Cointegration Pairs Trading Strategy On Derivatives --- p.10 / Chapter 3.1 --- Trading On Implied Volatility --- p.10 / Chapter 3.2 --- Cointegration Trading Strategy --- p.12 / Chapter 3.3 --- Greek Letters --- p.13 / Chapter 3.3.1 --- Requirements of the Trade --- p.13 / Chapter 3.3.2 --- Approximation of the Expected P/L --- p.15 / Chapter 3.4 --- Foreign Exchange Options --- p.18 / Chapter 3.4.1 --- Cointegration Pairs --- p.19 / Chapter 3.4.2 --- Trading Process --- p.21 / Chapter 3.4.3 --- More Examples --- p.22 / Chapter 4 --- Further Trading Strategies --- p.26 / Chapter 4.1 --- Estimation of Realized Volatility --- p.26 / Chapter 4.2 --- Implied-Realized Criterion --- p.27 / Chapter 4.3 --- Gamma-Vega Criterion --- p.29 / Chapter 4.4 --- Summary --- p.32 / Chapter 5 --- Conclusion and Further Discussion --- p.37 / A --- p.39 / B --- p.41 / Bibliography --- p.43

This dissertation comprises two essays. The first essay develops and tests a theoretical model that provides new insights when markets are partially segmented and the purchasing power parity (PPP) is violated which seems to be the case for the majority of national markets. The theoretical part derives closed form solutions for asset prices and portfolio holdings. Particularly, we show that deviations from PPP in mildly segmented markets induce a new form of systematic risk, termed segflation risk, and in equilibrium investors require compensation for this risk. A strong feature of the model is that it provides a theoretical framework for testing important issues; such as, pricing of foreign exchange risk and world market structure. The model also nests several existing international asset pricing models and thus provides a framework to distinguish empirically between competing models. The empirical part of the essay provides an empirical validation of the model for eight major emerging markets. The results give support to the model and point to the importance of the segflation risk which is statistically and economically significant. / The second essay uses our theoretical model to address the question of whether the IFC investable indices are priced globally or locally. Indeed S&P/IFC provides two emerging market indices: the IFC global index (IFCG) and its subset the IFC investable index (IFCI). Since the IFCI is fully investable, both the academic and practitioners implicitly assume that this subset of emerging markets is priced in the global context. This is a critical assumption for corporate finance decisions and portfolio management. Hence, this essay investigates the pricing behavior of the IFCI index returns using a conditional version of our model that allows for segmentation and PPP deviations. The results suggest that local factors are important in explaining returns of the IFC investable indices and that the return behavior of IFCI indices is similar to that of the IFCG.

No description available.