‎Comparing ‎the ‎‎different types of ‎Markov ‎switching ‎model for Euro to Iran Rial‎ exchange rate

Document Type : Journal of Mathematics and Modeling in Finance (JMMF)

Authors

1 Department of Mathematics and Computer Science, Allameh Tabataba'i University, Tehran, Iran.

2 Department of Mathematics and Computer Science, Allameh Tabataba’i University, Tehran, Iran.

3 Department of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.

10.22054/jmmf.2020.54870.1014

Abstract

According to the rule of equality of equal prices, the price of a foreign commodity within a country depends on the price of the commodity at the origin as well as the exchange rate of that country. According to this rule, if the foreign exchange costs are insignificant, the price of a single commodity will be the same everywhere in terms of price, and ideally the purchasing power of a currency inside and outside the country will be the same‏. ‎Due to the effect of the exchange rate on financial assets‎, ‎study of regime change ‎in ‎exchange rate fluctuations is importance and ‎Regime Switching model is the most complete and populare regime change‎. ‎The aim of this research is to modeling Euro-Rial exchange rate under the model of Markov regime switching and Markov random regime switching model‎. ‎In order to evaluate the achieved results‎, ‎unit root test‎, ‎which included the Dickey-Fuller test and the Phillips-Peron test, ‎is used to estimates Markov regime switching and Markov random regime switching parameters in order to find the best fluctuations model.‎‎

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