Analysis of Exchange Rates as Time-Inhomogeneous Markov Chain with Finite States
Irrespective of whether the test for homogeneity is significant or not, most researchers assume time-homogeneity in analysing Markov chains due to scanty literature on the analysis of time-inhomogeneous Markov chains. Based on the assumption that, for each point in time in the future, a stochastic p...
Saved in:
| Main Authors: | , , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2022-01-01
|
| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2022/3524808 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | Irrespective of whether the test for homogeneity is significant or not, most researchers assume time-homogeneity in analysing Markov chains due to scanty literature on the analysis of time-inhomogeneous Markov chains. Based on the assumption that, for each point in time in the future, a stochastic process will be subjected to a randomly selected transition matrix from an ergodic set of transition matrices the process was subjected to in the recent past, a methodology was proposed for analysing the long-run behaviours of time-inhomogeneous Markov chains. The proposed model was implemented to historical data consisting of the exchange rate of cedi-dollar, cedi-pound, and cedi-euro spanning over 6 years (January 2012 to December 2017). The results show that under certain “closeness” conditions, the long-run behaviours of the time-inhomogeneous case are almost identical to those of the time-homogeneous case. The paper asserted that even if the Markov chain exhibit time-inhomogeneity, analysing the Markov chain under the assumption of time-homogeneity is a step in the right direction under certain “closeness” conditions; otherwise, the proposed method is recommended. It was also found that investing in dollars yields better returns than the other currencies in Ghana. |
|---|---|
| ISSN: | 1687-0042 |