A probabilistic tool for monitoring the US-Canadian dollar exchange rate – A derivative based approach with the Heston model

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Authors
  1. Maybury, D.
Corporate Authors
Defence Research and Development Canada, Centre for Operational Research and Analysis, Ottawa ON (CAN)
Abstract
Using the Heston model stochastic volatility model with publicly available US-Canadian dollar exchange rate (USDCAD) option price data, I provide a client service tool that elicits the implied USDCAD risk neutral density function. The program displays this information through user specified dates for extracting the probability density functions, and through a heat map over the time horizon of the input data. Senior decision makers can use the information provided by this tool to monitor exchange rate risk over the fiscal year.

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Keywords
financial derivatives;financial engineering;foreign currency risk
Report Number
DRDC-RDDC-2015-R086 — Scientific Report
Date of publication
01 Sep 2015
Number of Pages
36
DSTKIM No
CA041293
CANDIS No
802354
Format(s):
Electronic Document(PDF)

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