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A novel approach to exchange rate control using controlled backward stochastic differential equations

Author

Listed:
  • A. N. Yannacopoulos

    (Department of Statistics and Actuarial Science, University of the Aegean, GR 83200 Karlovassi, Samos, Greece)

Abstract

We present an approach to exchange rate control based on the reformulation of the exchange rate equation as a controlled backward stochastic differential equation. We obtain an explicit solution for the optimal managed flot monetary rule, which is shown to depend crucially on the expectations of future values of the fundamentals, discounted properly.

Suggested Citation

  • A. N. Yannacopoulos, 2005. "A novel approach to exchange rate control using controlled backward stochastic differential equations," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 8(1), pages 74-91, Summer.
    • Handle: RePEc:ekn:ekonom:v:8:y:2005:i:1:p:74-91
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    Cited by:

    1. Xanthi-Isidora Kartala & Nikolaos Englezos & Athanasios N. Yannacopoulos, 2020. "Future Expectations Modeling, Random Coefficient Forward–Backward Stochastic Differential Equations, and Stochastic Viscosity Solutions," Mathematics of Operations Research, INFORMS, vol. 45(2), pages 403-433, May.

    More about this item

    JEL classification:

    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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