Volume 17, Issue 3, August 2016, Pages 1029–1036
Mohammed Bouasabah1 and Charaf Bensouda2
1 National school of business and management, Ibn Tofail University, Kenitra, Morocco
2 Mathematics Department, Ibn Tofail University, Kenitra, Morocco
Original language: English
Copyright © 2016 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Exchange rate in Moroccan economy has been considered a critical push-forward force for domestic inflation which leads to the depreciation of currency value. Exchange rate is the price for which the currency of a country can be exchanged for another country's currency in the foreign exchange market. This article seeks to adopt two stochastic models for estimation of exchange rate EURO/MAD. Firstly, it aims at the investigation of stochastic models (two models) to show the variation of exchange rate, and, secondly, try to draw a comparison between these models in terms of error estimation performances and, as a result, to recommend a stochastic model for exchange rate EURO/MAD. In this paper, the geometric Brownian motion (stochastic process without mean reversion propriety) and Vasicek process (stochastic process with mean reversion speed), are used to model the exchange rate EURO / MAD, then they are compared in terms of average estimation error. In order to calculate models parameters daily close price of the Euro/MAD from 01/12/2008 to 01/03/2016 (2242 values) can be taken from Casablanca stock exchange and ,hence, two stochastic models for exchange rate is to be derived, and compared. According to simulation results, we can finally recommend one of the two models.
Author Keywords: Exchange rate, Vasicek, Brownian motion, Euromad, Stochastic process.
Mohammed Bouasabah1 and Charaf Bensouda2
1 National school of business and management, Ibn Tofail University, Kenitra, Morocco
2 Mathematics Department, Ibn Tofail University, Kenitra, Morocco
Original language: English
Copyright © 2016 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
Exchange rate in Moroccan economy has been considered a critical push-forward force for domestic inflation which leads to the depreciation of currency value. Exchange rate is the price for which the currency of a country can be exchanged for another country's currency in the foreign exchange market. This article seeks to adopt two stochastic models for estimation of exchange rate EURO/MAD. Firstly, it aims at the investigation of stochastic models (two models) to show the variation of exchange rate, and, secondly, try to draw a comparison between these models in terms of error estimation performances and, as a result, to recommend a stochastic model for exchange rate EURO/MAD. In this paper, the geometric Brownian motion (stochastic process without mean reversion propriety) and Vasicek process (stochastic process with mean reversion speed), are used to model the exchange rate EURO / MAD, then they are compared in terms of average estimation error. In order to calculate models parameters daily close price of the Euro/MAD from 01/12/2008 to 01/03/2016 (2242 values) can be taken from Casablanca stock exchange and ,hence, two stochastic models for exchange rate is to be derived, and compared. According to simulation results, we can finally recommend one of the two models.
Author Keywords: Exchange rate, Vasicek, Brownian motion, Euromad, Stochastic process.
How to Cite this Article
Mohammed Bouasabah and Charaf Bensouda, “Elaboration of two stochastic models of EURO/MAD exchange rate and measure of their forecast accuracy,” International Journal of Innovation and Applied Studies, vol. 17, no. 3, pp. 1029–1036, August 2016.
