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dc.contributor.authorMercurio, Daniloen_US
dc.contributor.authorTorricelli, Costanzaen_US
dc.description.abstractThis paper analyzes short term portfolio investment opportunities in a capital market where a currency is defined as a currency basket, i.e. a linear combination of foreign currencies. In line with the mean-variance hedging approach, we determine a self-financed optimal investment strategy which minimizes an expected quadratic cost function. In order to implement such a strategy an estimate of the basket weights is required. To this end we suggest an adaptive nonparametric procedure, which, if compared with standard procedures, provides very satisfactory results both on simulated and real data. We apply the optimal investment strategy to the case of the Thai Bath basket. The basket weights are computed with the adaptive estimator. We also implement a recursive estimator, a rolling estimator and the Ka1man filter which serve as benchmark models. The different estimators are compared with profit based criteria.en_US
dc.publisherHumboldt-Universität Berlinen_US
dc.relation.ispartofseriesDiscussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2001,37en_US
dc.subject.keywordexchange ratesen_US
dc.subject.keywordmean-variance hedgingen_US
dc.subject.keywordadaptive estimationen_US
dc.titleEstimation and arbitrage opportunities for exchange rate basketsen_US
dc.typeWorking Paperen_US
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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