Exchange rate prediction, as one of the main variables in macroeconomics, has been one of the aims of the economic research for a long time. For modeling and predicting exchange rate we apply stochastic differential equation, specifically we use Geometric Brownian Motion (GBM) and Jump-Diffusion process (MJDP) attributed to Merton. We show that the result of simulation based on GBM and MJDP outperforms linear time series models, such as ARIMA, for both in sample and out of sample predictions based on RMSE criterion.
JEL Classification: C53, F47
KHODAVAISI, H., & Molabahrami, A. (2012). Modeling and Prediction Iranian Exchange Rate Based on Stochastic Differential Equations. Journal of Economic Research (Tahghighat- E- Eghtesadi), 47(3), 129-144. doi: 10.22059/jte.2012.29257
MLA
HASSAN KHODAVAISI; Ahmad Molabahrami. "Modeling and Prediction Iranian Exchange Rate Based on Stochastic Differential Equations". Journal of Economic Research (Tahghighat- E- Eghtesadi), 47, 3, 2012, 129-144. doi: 10.22059/jte.2012.29257
HARVARD
KHODAVAISI, H., Molabahrami, A. (2012). 'Modeling and Prediction Iranian Exchange Rate Based on Stochastic Differential Equations', Journal of Economic Research (Tahghighat- E- Eghtesadi), 47(3), pp. 129-144. doi: 10.22059/jte.2012.29257
VANCOUVER
KHODAVAISI, H., Molabahrami, A. Modeling and Prediction Iranian Exchange Rate Based on Stochastic Differential Equations. Journal of Economic Research (Tahghighat- E- Eghtesadi), 2012; 47(3): 129-144. doi: 10.22059/jte.2012.29257
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