Simulating Exchange Rate Volatility in Iran Using Stochastic Differential ‎Equations‎

‎The main purpose of this paper is to analyze the exchange rate volatility in Iran in the time period between ۲۰۱۱/۱۱/۲۷ and ۲۰۱۷/۰۲/۲۵ on a daily basis. As a tradable asset and as an important and effective economic  variable, exchange rate plays a decisive role in the economy of a country. In a successful economic management, the modeling and prediction of the exchange rate volatility is essential for economic policies. Therefore, modeling and forecasting the changes in exchange rates for economic policies is vital. Foreign currency has the particular property of stochastic volatility, which can be modeled as a stochastic differential equation. In order to provide the best model, first, we studied the effectiveness of different stochastic models, drew upon the daily price of the exchange rate, and investigated the performance of these models. Finally, the best model was achieved by taking into account the numerical simulation and the mean square error, Akaikes (AIC), Schwarz’s Bayesian (SBIC), and the Hannan-Quinn (HQIC) ‎criteria.

Keywords:

Stochastic differential equation , Geometric Brownian Motion , Volatility of exchange rate , White ‎noise.‎