Performance of garch models in forecasting the exchange rate volatility of saarc countries

Abstract

Volatility plays a key role in asset and portfolio management, derivatives pricing as well as exchange rate forecasting. In this paper we find out the performance of the Linear GARCH and Non-linear GARCH model for forecasting the exchange rate volatility of 'SAJ\RC countries. Using the data from seven SAARC countries we have found that non-linear GARCH model gives better results and good forecasting performance for Maldives, Nepal, Pakistan and Sri Lanka whereas linear GARCH model gives better result and good forecasting performance for Bangladesh, Bhutan, and India.