Abstract:
The main objective of my Masters thesis is to study the Dynamic structure that
return prices or exchange rates exhibits. Intensive studies have been conducted for
inferring the parameters and missing information. [1] paper studies this for ASEAN
(Association of South East Asian Nations) markets. To study this I have chosen SV
model as it mimics most of the stylized facts that exchange rates show. Also I have
applied a Bayesian computation approach to infer the parameters associated with
the SV model. I have chosen MCMC technique as the main approach since it solves
some rigorous calculation issues which other techniques cannot overcome. Our data
series includes exchange rates of Indian Rupees (INR) with United States Dollars
(USD), and the period covers the crises of the ASEAN markets in 1997. Most
of the part of thesis includes understanding of the basic and advanced concepts
involved while applying MCMC technique to SV model. I have also studied MCMC
application to some other models, which I have not mentioned in this thesis, like
Geometric Brownian model etc, but I have concentrated my studies on SV model
for the application of MCMC. Finally I have estimated the parameters involved in
SV model by producing results from my own written MATLAB codes. The results
produced are quite expected because of high level of persistence involved in the data.
Also, the properties of MCMC can be quite easily visible from the graphs shown
in the results section. It would be interesting for further research to come up with
more time-effective codes.
