Please use this identifier to cite or link to this item: https://cris.library.msu.ac.zw//handle/11408/4608
Title: Optimal foreign exchange rate intervention in lévy markets
Authors: Mutakaya, Masimba Aspinas
Chikodza, Eriyoti
Chiyaka, Edward T.
Keywords: Exchange rate
Central Bank
Issue Date: 2014
Publisher: Hindawi
Series/Report no.: International Journal of Stochastic Analysis;Vol. 2014: p. 1-9
Abstract: This paper considers an exchange rate problem in Lévy markets, where the Central Bank has to intervene. We assume that, in the absence of control, the exchange rate evolves according to Brownian motion with a jump component. The Central Bank is allowed to intervene in order to keep the exchange rate as close as possible to a prespecified target value. The interventions by the Central Bank are associated with costs. We present the situation as an impulse control problem, where the objective of the bank is to minimize the intervention costs. In particular, the paper extends the model by Huang, 2009, to incorporate a jump component. We formulate and prove an optimal verification theorem for the impulse control. We then propose an impulse control and construct a value function and then verify that they solve the quasivariational inequalities. Our results suggest that if the expected number of jumps is high the Central Bank will intervene more frequently and with large intervention amounts hence the intervention costs will be high.
URI: https://doi.org/10.1155/2014/746815
http://hdl.handle.net/11408/4608
Appears in Collections:Research Papers

Files in This Item:
File Description SizeFormat 
746815.pdfFull Text2.08 MBAdobe PDFThumbnail
View/Open
Show full item record

Page view(s)

30
checked on Jun 22, 2024

Download(s)

12
checked on Jun 22, 2024

Google ScholarTM

Check


Items in MSUIR are protected by copyright, with all rights reserved, unless otherwise indicated.