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Performance Metrics: • (1 + i° ) = S∫ ¹1 + i∫ º » ½ 7. Forward discount or premium as % of spot
g ®∫ /¼
2. Accuracy = (TP + TN)/(TP + FP + TN + ° rate:
5¾‡∫
FN) • F∫ /° = S∫ ‰
(5¾‡¼ )
Š Ff / d - S f / d
g
F1 score = (2*P*R)/(P + R) ° @ (i f - id )
• Using day count convention: S f /d
3. Receiver Operating Characteristic (ROC): ' ! Actual $* If uncovered interest rate parity holds
)1+ id # ,=
False positive rate (FPR) = FP/(TN + FP)
( " 360 &%+ • Ff /d − S f /d
and = = %ΔS ef /d ≅ (i f − id )
S f /d
True positive rate (TPR) = TP/(TP + FN), ' ! Actual $*' 1 *
S f /d )1+ i f # ,) ,
which is same as recall
( " 360 &%+)( Ff /d ,+
8. Purchasing Power parity (PPP)
4. Root Mean Square Error (RMSE): • Pf = S f/d × Pd
d
(𝑃𝑟𝑒𝑑𝑖𝑐𝑡𝑒𝑑c − 𝐴𝑐𝑡𝑢𝑎𝑙c )B æ é Actual ù ö • S f/d = Pf / Pd
` ç1+ i f ê
360 úû ÷
÷
𝑛 • ç ë
ce5 Ff / d = S f /d
ç é Actual ù ÷ 9. Relative version of PPP = %∆S f/d = πf – πd
ç 1 + id ê ÷
Reading 9: Excerpt from ‘Probabilistic è ë 360 úû ø
10. Ex ante version of PPP = %∆Sef/d = πef –
Approaches, Scenario Analysis, Decision Tree πed
& Simulations’ 6. Uncovered Interest Rate Parity :
i f - %DS e f / d = id 11. Real Exchange Rate
•
%DS e
= i f - id æ S f / d Pd ö æ ö
Reading 10: Currency Exchange Rates •
f /d
ç ÷ = S f / d ç Pd ÷
ç P ÷ çP ÷
qf/d = è ø è f ø
• Forward premium or discount: f
1. Bid-offer Spread = Offer price – Bid price • For one year horizon =
æ CPI d ö
2. Fwd rate = Spot Exchange rate + Ff /d − S f /d = qf /d = S f /d ç ÷
®8?¯>?° ±8‡4²< ç CPI ÷
5ƒ,ƒƒƒ "i −i % or è f ø
3. Forward premium/discount (in %) =
S f /d $ f d ' ≅ S f /d (i f − id ) 12. Fisher effect:
<±8² µS7¶>4·µ ?>²µ.(x8?¯>?° ±8‡4²</5ƒ,ƒƒƒ)
# 1+ id &
−1 • id = rd + πεd
<±8² µS7¶>4·µ ?>²µ • Using day count convention: • if = rf + πεf
( " Actual % +
* $ - • if – id = (rf – rd) + (πεf- πεd)
4. To convert spot rate into forward quote: # 360 '& - • (rf – rd) = (if – id) - (πεf- πεd)
• Spot exchange rate × (1 + % premium) Ff /d − S f /d = S f /d * (i f − id )
* 1+ i " Actual % -
* d$ -
• Spot exchange rate × (1 - % discount) ) # 360 '& ,