A Modification to ESG’s Exchange Rate Calculation: Implications for Model Validation
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Document ID: 2006-102 (previously 2006/010)
Published on: 1st February 2006
Author: Rutang Thanawalla, Steven Morrison
This document outlines how the exchange rate calculation has been modified in a recent release of the ESG. An approximation used for the real short rate has now been dropped. The early parts of the document explain the revised calculation of the exchange rate. The latter half of the document quantifies the effect this change has on routine asset martingale tests that validate risk-neutral valuation.
