Predicting USDKRW volatility

Abstract

Using ultra high-frequency data, price jump in USDKRW spot rate is estimated and thoroughly examined. Inconsistent with a previous study, the proportion of jump to total volatility is 6% on average, much higher than previous study on major currency pairs. Furthermore, the role of jump when predicting future volatility seems to be insignificant, also contradicting other previous studies. The comparison of two models, one including jump term and the other including no jump term, shows that the latter has superior ability to predict future volatility in terms of various measures of prediction errors.