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On Robust Testing and Modelling of Threshold-Type Non-Linearity in ASEAN Foreign Exchange Markets

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  • Chan Wai-Sum

    (The Chinese University of Hong Kong)

  • Hung King-Chi

    (The Chinese University of Hong Kong)

Abstract

There are many situations in which insurance companies operating in the Asian region encounter foreign exchange risk. This paper considers a stochastic threshold approach to modelling foreign exchange risks in some Association of Southeast Asian Nations (ASEAN) markets. The class of self-exciting threshold autoregressive (SETAR) models is used. These models are able to capture the exchange rate band phenomenon that has been discussed in the monetary economics literature. Both ordinary least squares and robust modelling procedures are considered.

Suggested Citation

  • Chan Wai-Sum & Hung King-Chi, 2011. "On Robust Testing and Modelling of Threshold-Type Non-Linearity in ASEAN Foreign Exchange Markets," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 5(2), pages 1-16, July.
    • Handle: RePEc:bpj:apjrin:v:5:y:2011:i:2:n:3
    DOI: 10.2202/2153-3792.1110
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    References listed on IDEAS

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    7. Wai-Sum Chan & Albert Wong & Howell Tong, 2004. "Some Nonlinear Threshold Autoregressive Time Series Models for Actuarial Use," North American Actuarial Journal, Taylor & Francis Journals, vol. 8(4), pages 37-61.
    8. Zhang, Li-Xin & Chan, Wai-Sum & Cheung, Siu-Hung & Hung, King-Chi, 2009. "A note on the consistency of a robust estimator for threshold autoregressive processes," Statistics & Probability Letters, Elsevier, vol. 79(6), pages 807-813, March.
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