Modeling of Volatility in Naira/Pounds Sterling Exchange Rate
Odu Vine Imerani & Didi Isaac Essi
Department of Mathematics,
Rivers State University Port Harcourt, Nigeria
Email: etuk.ette@ust.edu.ng
Corresponding Author: Ette Harrison Etuk
ABSTRACT
The study models exchange rate volatility in Naira/Pounds sterling with a monthly data March, 2003 – May, 2017 extracted from Central Bank of Nigeria using a set of parameters for the error distribution except for the normal errors. From the analysis, the variable was stationary at first differencing with P-value less than 0.05. The presence of ARCH effect was confirmed and volatility estimated using GARCH family models with varying degrees of freedom for student-t error distribution, which controls the tail shape and also varying degrees of shape parameters for the generalized error distribution (GED). The shape parameters for the generalized error distribution (GED) was fixed at r = 1.0, 1.5 and 1.75 while student’s–t error distribution, the degrees of freedom was fixed at r = 5, 10 and 15. The optimal model selected using Schwarz Information Criteria (SIC) of -3.816914. Recommendations were made based on the findings of the result.
