USD-PHP Forecasting of Weekly Average Rates Using Ornstein-Uhlenbeck Process (OUP)
  • USD-PHP Forecasting of Weekly Average Rates Using Ornstein-Uhlenbeck Process (OUP)
  • USD-PHP Forecasting of Weekly Average Rates Using Ornstein-Uhlenbeck Process (OUP)
  • USD-PHP Forecasting of Weekly Average Rates Using Ornstein-Uhlenbeck Process (OUP)
Originally published: 10/08/2020 20:55
Publication number: ELQ-14324-1
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USD-PHP Forecasting of Weekly Average Rates Using Ornstein-Uhlenbeck Process (OUP)

Implementation of Ornstein-Uhlenbeck Process on USD/PHP weekly foreign exchange rates

Description
The content of this tool is the implementation of Ornstein-Uhlenbeck Process (OUP) on USD/PHP weekly average FX rates. The difference between forecasted amount and actual amount as taken from the Philippine Central Bank or Bangko Sentral ng Pilipinas (BSP) does not exceed 5%.

The use of OUP in forecasting the PHP emerging market currency is based on this paper: Need for mean reversion in forecasting Emerging Market Exchange Rates, Phani Kumar (please see link in the HTML file).

As the paper does not include the calibration of the OUP, the Author of this tool used a paper by Thijs van den Berg, Calibrating Ornstein-Uhlenbeck (Vasicek) Model (also link in the HTML file).

The objective of this tool is to help those starting in stochastic modeling and/or starting in python but familiar with the math. User of this tool would also appreciate the structure of the documentation and flow of the process.

The Author of this tool used excel (as a small dataset is used) in some of the process namely, data pre-processing and computation of slope and y-intercept as I find it efficient to work on excel on these stages rather than coding it in Python.

I assure the user that there is a lot to improve is this model in terms of code efficiency but if this tool helped you in any way then the I believe this tool's objective is achieved.

This Best Practice includes
1 excel file, 1 HTML file

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Further information

The objective of this tool is to help those starting in stochastic modeling and/or starting in python but familiar with the math. User of this tool would also appreciate the structure of the documentation and flow of the process.

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FX trading

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