Abstract
We perform out-of-sample prediction on both fixed and black market Chinese renminbi/US dollar, and black market rial/US dollar exchange rates by using the time-delay embedding technique and the local linear prediction method. We also predict an artificially generated chaotic time series with and without noise for the purpose of validation of the methods used in this study. In all examples tested, our prediction results significantly outperform those by the benchmark mean value predictor based on a statistic defined by Harvey et al. [11]. Another interesting result found in this paper is that one may use the embedding dimension as a measure of volatility of a financial asset.
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