In theory FX rates are expected to grow at rate equal to interest rate differential. In practise it is never true. Though you have 2 ways to calc your expected growth: 1. empirical 2. int rate differential
Code I included is simple daily simulation, adjust parameters as you wish. However, quantiles can be obtained empirically, so simulation is not really needed. Also, what I did is daily simulation, which is useful for path dependent applications, in your case distribution at final time T is enough and this would make code faster. Calibrating: 1. Volatility lnS = lng(S_t/S_t-1) muS = mean(lnS) volS = sqrt(sum(lnS - muS)) or simply sd(lnS) 2. expected rate of return a) empirical would just be mean(lnS) b) interest rate differential: careful with compounding. Online will be simple compounding, need to convert it to continuous. If you need any other further help/advice let me know. I would gladly support you if I understood what you are trying to achieve. Provide me with some data/workings so I can help you more. Kind regards,-- Dominykas Grigonis On Friday, 17 January 2014 at 06:39, Jaimie wrote: > Hi dominykas > > First of all, thanks for Your help. > > I'm trying to model try/eur exchange rate. > I would like to find out whether spot rate as of december 31st 2013 is normal > (is as expected) or is not due to some external factors like political > inestability that could have affected its expected evolution. > Therefore, i would like to calibrate the model based on data up to december > 31st 2012 and make forecasts 1 yr ahead to get its expected evolution and > also to simulate and get what the quantile of spot rate as of december 31st > 2013 is, based on simulated values. Is It in the tail of the distribution? , > is It nearest to the expected value....? > > If You have some code that would help me to get these goals, i would be > strongly grateful if you could share It. > > Bests > > Jaimie > > Pd: forgive any spelling mistakes. > Enviado desde mi iPhone > > El 16/01/2014, a las 10:36, Dominykas Grigonis <[email protected] > (mailto:[email protected])> escribió: > > > BS means black scholes model. Simply: S_1 = S_0 exp((mu - vol^2/2)t + vol > > dW), where dW ~ N(0,t) > > > > Do not know about packages, if you want I can provide you some code. It is > > pretty simple if you know what you are doing. What are you trying to > > achieve? Do you want to get a view for the future? Price options? Or > > building some kind of strategy testing? > > > > > > Kind regards,-- > > Dominykas Grigonis > > > > > > On Thursday, 16 January 2014 at 04:14, Jaimie Villanueva wrote: > > > > > Hi, > > > > > > I'm not experienced on this so, Could you tell me a bit more on this? > > > > > > What BS stands for and what are the package/s i should go to? > > > I would need to calibrate the parameter of the model as well as simulate > > > values. > > > > > > Bests > > > > > > Jaimie > > > > > > > > > On Wed, Jan 15, 2014 at 8:34 PM, Dominykas Grigonis > > > <[email protected] (mailto:[email protected])> wrote: > > > > Exchange rates are not mean reverting. Simple BS with interest rate > > > > differential is usually applied. > > > > > > > > > > > > Kind regards,-- > > > > Dominykas Grigonis > > > > > > > > > > > > On Wednesday, 15 January 2014 at 19:30, Jaimie wrote: > > > > > > > > > > > > > > > > > Hi R users > > > > > > > > > > I'm trying to model fx rates with one-factor models like CIR, > > > > > Vasicek, hull-white etc. Those usually used in the context of > > > > > interest rate modeling. > > > > > I was wondering: > > > > > > > > > > 1- Would It make sense? I mean, applying short rate models to > > > > > exchange rates. > > > > > > > > > > 2- What would be the best r package i should go to? Is there one > > > > > specially recomended? > > > > > > > > > > Thanks a lot in advanced. > > > > > > > > > > Jaimie > > > > > > > > > > Enviado desde mi iPhone > > > > > _______________________________________________ > > > > > [email protected] (mailto:[email protected]) > > > > > mailing list > > > > > https://stat.ethz.ch/mailman/listinfo/r-sig-finance > > > > > -- Subscriber-posting only. If you want to post, subscribe first. > > > > > -- Also note that this is not the r-help list where general R > > > > > questions should go. > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > -- > > > Jaimie. > >
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