the forward discount differed from future exchange rate changes due to the rejection of the unbiasedness condition and to …

the forward discount differed from future exchange rate changes due to the rejection of the unbiasedness condition and to …

In this study we analyse the issue of mean reversion in forward discount based on nonlinear framework for seven … root tests. This approach disentangles tbodhe issue of nonlinearity and nonstationarity in forward discount. After applying … found that forward discount behaves as unit root in a band and becomes mean reverting outside the band. This explains the …

) the forward discount bias in currency exchange rates. I show that if currency options are valued in analogy with the … underlying currency and beliefs are heterogeneous, then the forward discount bias causes the smile. The analogy based currency … option pricing formula is put forward, which converges to Garman-Kohlhagen formula if there is no forward discount bias. In …

update their expectations, eventually restoring the parity. It is in this adjustment period, when the forward discount puzzle … the US dollar. Results indicate that the forward discount puzzle loses signi cance after allowing for an adjustment period …This paper argues that considerable switches in monetary policy are able to explain a major part of the forward …