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Construction Of Models For Bounded Price Processes: The Case Of The Hkd Exchange Rate

Author

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  • HONG BEN YEE

    (Department of Mathematics Statistics, Curtin University, GPO Box U1987, Perth, Western Australia 6845, Australia)

  • NIKOLAI DOKUCHAEV

    (Department of Mathematics Statistics, Curtin University, GPO Box U1987, Perth, Western Australia 6845, Australia)

Abstract

This paper discusses construction of evolution models for financial time series evolving within a given interval. We calibrated a model for the case of the USD/HKD exchange rate after the separation of strong and weak side convertibility undertakings, in which the rate is confined to a specified corridor. This process represents an interesting example of a tradable bounded process. A one-dimensional (1D) model was able to replicate the bounded distribution of the process, but a two-dimensional (2D) model better captured dynamics as measured by the volatility without losing features of the 1D model. We briefly consider the ergodic properties of these models.

Suggested Citation

  • Hong Ben Yee & Nikolai Dokuchaev, 2015. "Construction Of Models For Bounded Price Processes: The Case Of The Hkd Exchange Rate," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 1-23, December.
    • Handle: RePEc:wsi:afexxx:v:10:y:2015:i:02:n:s2010495215500116
    DOI: 10.1142/S2010495215500116
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    References listed on IDEAS

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