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Forecasting Exchange Rate

nklodowski

Joined
4/18/10
Messages
1
Points
11
Hello,

I was wondering if anyone could help me with a problem I am having. I need to price a cross-currency swap using a calibrated EV (Hull-White) model. I am doing so using Monte Carlo simulation. I have the interest rates being simulated forward in time, but I don't know how to simulate the evolution of the exchange rate. I am given the current value and the implied volatility. However, I don't know of a model to use for forecasting exchange rates, and I haven't been able to find one in my texts.

Specifically, does anyone have a good recommendation for a model or a reference for an exchange rates dynamics?

Thanks,
Nick
 
Although FX rates can in theory go to zero or infinity, (and occasionally do), they exhibit substantial periods of mean reversion.
 
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