A New Hybrid Model for Intraday Spot Foreign Exchange Trading Accounting for Heavy Tails and Volatility Clustering

作者：Serbinenko Anna^*; Rachev Svetlozar T

来源：Journal of Computational Analysis and Applications, 2010, 12(1): 337-360.

• Foreign Exchange Market
• Intraday Trading
• Heavy Tails
• Volatility Clustering
• Market Microstructure

Intraday Spot Foreign Exchange market, is extremely volatile and cannot be explained by macro fundamentals. Models of market microstructure have a better forecasting quality, while still cannot fully explain the exchange rates fluctuations, especially over short term and oil high frequency data. In this paper, we construct a new model for explaining forex market movements on minute data. This model involves price data on two different time frames, one macro fundamental variable and accounts for Volatility clustering through a GARCH approach. Alpha-stable distributions appropriately describe the behavior of residuals. The model is constructed in two variants - for market makers observing the orders flow and for traders who only have the information about the price. In both cases, the new model outperforms other previously studied models.

• 出版日期2010-2