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Foreign Exchange (FX)

  • Zura Kakushadze
  • Juan Andrés Serur
Chapter

Abstract

This chapter discusses, including detailed mathematical descriptions, various foreign exchange trading strategies. These include FX momentum strategies based on moving averages after high-frequency noise is removed from the time series of foreign exchange rates using the Hodrick–Prescott filter known as the Whittaker–Henderson method in actuarial sciences, FX carry trades based on deviations from the Uncovered Interest Rate Parity also known as the forward discount puzzle, where low interest rate currencies are borrowed and high interest rate currencies are bought, together with their zero-cost variations known as the high-minus-low carry, the dollar carry strategy, which bets on or against the U.S. dollar vs. a basket of foreign currencies and is correlated with the state of the U.S. economy, momentum and carry combinations, and triangular foreign exchange arbitrage, which involves three currency pairs and can be extended to more than three currency pairs.

Keywords

Moving average High-frequency noise Time series Foreign exchange rate Hodrick–Prescott filter Whittaker–Henderson method FX carry trades Uncovered Interest Rate Parity Forward discount puzzle High-minus-low carry Dollar carry trade Triangular arbitrage Currency pair Multi-currency arbitrage Covered Interest Rate Parity Forward contract Forward discount Forward premium Risk-free arbitrage Foreign currency Sample covariance matrix Bid Ask Interest rate Cross-sectional trade 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Zura Kakushadze
    • 1
  • Juan Andrés Serur
    • 2
  1. 1.Quantigic Solutions LLCStamfordUSA
  2. 2.Universidad del CEMABuenos AiresArgentina

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