Modeling FX Rate with a Novel Heavy Tail Distribution

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F68407700%3A21340%2F20%3A00374208" target="_blank" >RIV/68407700:21340/20:00374208 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
angličtina
Original language name
Modeling FX Rate with a Novel Heavy Tail Distribution
Original language description
An appropriate model of the distribution of returns of exchange rates is important pricing, risk management decisions, and portfolio allocations. Several models have been applied to them so far. However, the results have not been totally satisfactory. To amend the current state, we propose the use of a novel distribution for modeling the returns of exchange rates. This distribution originates from generalized gamma distribution which is regularized and symmetrized to make it fit for return modeling. After these adjustment, the distribution is smooth, differentiable and defined in the whole real domain. It can also capture the well-known heavy tail property of financial asset returns. The suitability of this model is verified on the returns of USD/EUR exchange rate. Verification is performed in an innovative way so that the results can be usable in practical financial engineering. The results of the testing show a promising applicability perspective of this novel distribution.
Czech name
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Czech description
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Publication year
2020
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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