We study the behavior of real exchange rates in a two­country dynamic equilibrium model. In this model, consumers can only consume domestic goods but can invest costlessly in capital stocks of both countries. Nevertheless, transporting goods between the two countries is costly and, hence, the...

We develop a coordination game to model interactions between fundamentals and liquidity during unstable periods in financial markets. We then propose a flexible econometric framework for estimation of the model and analysis of its quantitative implications. The specific empirical application is...

We study time-varying realized volatility and related correlation measures as proxies for the true volatility and correlation. We investigate measures of Two-Scale realized Absolute Volatility (TSAV) and correlation (TSACORxy) which are helpful to cope effectively with the problem of market...

We propose in this paper a likelihood-based framework forcointegration analysis in panels of a fixed number of vector errorcorrection models. Maximum likelihood estimators of thecointegrating vectors are constructed using iterated GeneralizedMethod of Moments estimators. Using these estimators...

Five diffusion models are estimated using three different foreign exchange rates to find an appropriate model for each. Daily spot exchange rates expressed as the prices of 1 euro, 1 British pound and 100 Japanese yen in US dollars, respectively denoted by USD/EUR, USD/GBP, and USD/100JPY, are...

Complex interactions between fundamentals and liquidity during unstable periods in financial markets are succinctly modeled with coordination games. We propose a flexible framework to estimate such a model and use the efficient method of moments as estimation procedure. We illustrate the model...

Lecture notes for a short course on FX option valuation. Includes: - Mathematical framework for FX valuation - Handling the smile and term structure for vanilla options (calls and puts): --- Interpolation issues and techniques --- Handling business time --- Handling market conventions - Pricing...

The portfolio decision problem for global investments involves a joint choice over the financial assets and currencies. This paper investigates currency risk hedging when the volatilities and the correlations of forward currency contracts with the financial assets, are all time-varying. In order...

In this paper we present a parsimonious multivariate model forexchange rate volatilities based on logarithmic high-low ranges ofdaily exchange rates. The multivariate stochastic volatility modeldivides the log range of each exchange rate into two independentlatent factors, which are interpreted...

We develop a global vector autoregressive model to study the transmission of information between currency spot markets. Our model accounts for both simultaneous and dynamic interactions between exchange rates and order flows using historical data from the Reuters Dealing 2000 – 1 platform for...