Interest Rate Arbitrage in Currency Baskets: Forecasting Weights and Measuring Risk

Journal of Business and Economic Statistics

33 Pages Posted: 26 Oct 1999

See all articles by Peter Christoffersen

Peter Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School; Aarhus University - CREATES

Lorenzo Giorgianni

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Abstract

We use a time-series modeling approach to address two related questions of interest to foreign exchange market participants and policy makers dealing with basket currencies. First, how are unknown weights appropriately extracted from basket currencies? Second, how does one correctly account for the risk-in terms of conditional variance of expected profits-that time-varying weights add to the standard basket hedge position? We suggest a methodology that can provide answers to these questions and apply it to the heavily traded Thai baht currency basket.

JEL Classification: C53, F31

Suggested Citation

Christoffersen, Peter and Giorgianni, Lorenzo, Interest Rate Arbitrage in Currency Baskets: Forecasting Weights and Measuring Risk. Journal of Business and Economic Statistics. Available at SSRN: https://ssrn.com/abstract=184608 or http://dx.doi.org/10.2139/ssrn.184608

Peter Christoffersen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5P 3C4
Canada
416-946-5511 (Phone)

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Aarhus University - CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Lorenzo Giorgianni

International Monetary Fund (IMF) ( email )

700 19th Street NW
Asia and Pacific Department
Washington, DC 20431
United States
202-623-5326 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
424
Abstract Views
2,622
rank
51,968
PlumX Metrics