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Some New Approaches to Formulate and Estimate Friction-Bernoulli Jump Diffusion and Friction-GARCH

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Abstract

In this paper we propose a friction model with a Beroulli jump diffusion and a friction with GARCH to examine the exchange rates movements in Taiwan. The proposed model resolves the estimation problem associated with the stepwise movements of observed exchange rates. The specification maintains the desirable economic properties associated with movements in exchange rate returns and is empirically tractable. The AIC apparently favors the model based on Friction-GARCH model.

Suggested Citation

  • Chihwa Kao, 2001. "Some New Approaches to Formulate and Estimate Friction-Bernoulli Jump Diffusion and Friction-GARCH," Center for Policy Research Working Papers 35, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:35
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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