|Statement||by Ronald MacDonald [and] MarkP. Taylor.|
|Series||Discussion papers / University of Aberdeen. Department of Economics -- 87-15|
|Contributions||Taylor, Mark P., 1958-|
Extracting information from the forward premium term structure. Clarida and Taylor () suggest that although the forward rate may not be an optimal predictor of the future spot rate it may still be possible to extract information from the FPTS that will be useful for forecasting exchange rates. In other words, their forecasting framework is designed not so much to exploit Cited by: 4. Downloadable (with restrictions)! We develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and the presence of risk premiums. Using weekly dollar-sterling, dollar- mark, and dollar-yen data, the restrictions implied by our framework are . The difficulty of outperforming this benchmark is well documented, although Clarida and Taylor have demonstrated how the random walk can be beaten in this metric by exploiting information embedded within the term structure of forward exchange rate premia. But this achievement does not guarantee success within an investment context. Forward Exchange Contract: A forward exchange contract is a special type of foreign currency transaction. Forward contracts are agreements between two parties to exchange two designated currencies.
The Term Structure Of Forward Exchange Premiums And The Forecastability Of Spot Exchange Rates: Correcting The Errors Article (PDF Available) in Review of Economics and Statistics 79(3) Foreign exchange dates back to ancient times, when traders first began exchanging coins from different countries. However, the foreign exchange it self is the newest of the financial markets. In the last hundred years, the foreign exchange has undergone some dramatic transformations. The Bretton Woods Agreement, set up in , remainedCited by: 1. Spot and Forward Volatility in Foreign Exchange. crash risk in explaining forward premia puzzle. condition on the relation between the term structure of . Currency Forward: A binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency Author: Marshall Hargrave.
Working Paper No. By Luca Benati. This paper uses two affine term structure models from the Duffie-Kan class—a three-factor Cox-Ingersoll-Ross model, and a three-factor model in the spirit of Longstaff and Schwartz—to extract historical estimates of foreign exchange risk premia for the pound with respect to the US dollar. Get this from a library! Term, Inflation, and Foreign Exchange Risk Premia: A Unified Treatment. [Lars E O Svensson] -- The paper reviews the theoretical foundations of the use of forward interest rates to infer expected future rates of interest, inflation, currency depreciation and inflation differentials. Forward. We develop a stochastic programming framework for hedging currency and interest rate risk, with market traded currency forward contracts and interest rate swaps, in an environment with uncertain cash flows. The framework captures the skewness and kurtosis in exchange rates, transaction costs, the systematic risks in interest rates, and most importantly, Author: Jörgen Blomvall, Jonas Ekblom. (nominal) expected return to speculation in the forward foreign exchange market conditioned on available information is zero: Et [s t+ δt - s t] = f t - s t (4) where s t is the logarithm of the spot exchange rate S t, f t is the logarithm of the forward rate F t contracted at t and matures at t + δt. As a consequence, the (log) forward exchangeFile Size: KB.