Volatility Dynamics in Foreign Exchange Rates: Further Evidence from the Malaysian Ringgit and Singapore Dollar

Singapore dollar are analyzed in this paper. Our approach can simultaneously capture the empirical regularities of persistent and asymmetric effects in volatility and timevarying correlations of financial time series. Consistent with the results of Tse and Tsui (1997), there is only some weak support for asymmetric volatility in the case of the Malaysian ringgit when the two currencies are measured against the US dollar. However, there is strong evidence that depreciation shocks have a greater impact on future volatility levels compared with appreciation shocks of the same magnitude when both currencies measured against the yen. Moreover, evidence of time-varying correlation is highly significant when both currencies are measured against the yen. Regardless of the choice of the numeraire currency and the volatility models, shocks to exchange rate volatility are found to be significantly persistent.Constant correlations; Exchange rate volatility; Fractional integration; Long memory; Bivariate asymmetric GARCH; Varying correlations

Modelling long memory in exchange rate volatility

Master'sMASTER OF SOCIAL SCIENCE

Addressing quality, access and equity in the school direct subsidy scheme in Hong Kong : a study of government strategies and tools

published_or_final_versionPolitics and Public AdministrationMasterMaster of Public Administratio

Conditional volatility asymmetry of business cycles: Evidence from four OECD countries

Most studies of business cycle exclude the dimension of asymmetric conditional volatility. In this paper, we propose three bivariate asymmetric GARCH models to capture the properties of conditional volatility and time-varying conditional correlations of business cycle indicators in four OECD countries. Our study extends the constant conditional correlation framework proposed by Bollerslev (1990) and the time-varying conditional correlation approach by Tse and Tsui (2002), respectively. Using indices of industrial production as proxies for business cycles indicators, we detect statistically significant evidence of asymmetric conditional volatility in the UK and US. Additionally, we find that the conditional correlations are significantly time-varying, and that the strength of varying correlations may be linked to the degree of economic integration between the countries

A Nonparametric Option Pricing Model Using Higher Moments

A nonparametric model that includes non-Gaussian characteristics of skewness and kurtosis is proposed based on the cubic market capital asset pricing model. It is an equilibrium pricing model but risk-neutral valuation can be introduced through return data transformation. The model complies with the put-call parity principle of option pricing theory. The properties of the model are studied through simulation methods and compared with the Black-Scholes model. Simulation scenarios include cases on nonnormality in skewness and kurtosis, nonconstant variance, moneyness, contract duration, and interest rate levels. The proposed model can have negative prices in cases of out-of-money options and in simulation cases that are different from real-market situations, but the frequency of negative prices is reduced when risk-neutral valuation is implemented. The model is more adaptive and more conservative in pricing options compared to the Black-Scholes model when nonnormalities exist in the returns data

A Nonparametric Option Pricing Model Using Higher Moments

A nonparametric model that includes non-Gaussian characteristics of skewness and kurtosis is proposed based on the cubic market capital asset pricing model. It is an equilibrium pricing model but risk-neutral valuation can be introduced through return data transformation. The model complies with the put-call parity principle of option pricing theory. The properties of the model are studied through simulation methods and compared with the Black-Scholes model. Simulation scenarios include cases on nonnormality in skewness and kurtosis, nonconstant variance, moneyness, contract duration, and interest rate levels. The proposed model can have negative prices in cases of out-of-money options and in simulation cases that are different from real-market situations, but the frequency of negative prices is reduced when risk-neutral valuation is implemented. The model is more adaptive and more conservative in pricing options compared to the Black-Scholes model when nonnormalities exist in the returns data

Modeling the Conditional Volatility Asymmetry of Business Cycles in Four OECD Countries: A Multivariate GARCH Approach

Abstract: There are many studies on the business cycle indicators in the past decades, but mostly focusing on the asymmetric and non-linear features of business cycles incorporated into the conditional mean equation rather than the conditional variance formulation. Recently, the hypothesis of volatility asymmetry in business cycle indicators has been re-examined by, for instance, Our study extends the constant conditional correlation framework proposed by • if business cycles are conditionally heteroskedastic and exhibit volatility asymmetry, then any theory without such properties is inadequate. • the GARCH structure is consistent with the hypothesis of rational expectations in macroeconomics as rational economic agents make decisions based on all available information (see Hong and Lee, 2001 for details). • since movements in the financial markets are inextricably linked to the overall health of the economy, adequate accommodation of macroeconomic uncertainty such as conditional volatilities of business cycles would help researchers understand more about the causes of changes in financial market volatilities, and • it is vital to understand the domestic macroeconomic policy implications of asymmetric volatility and the corresponding policy co-ordinations among major international trading partners