Variance – Covariance Risk Value Model for Currency Market

ISSN 1392-2785 ENGINEERING ECONOMICS. 2009. No 1 (61)

ECONOMICS OF ENGINEERING DECISIONS

Variance – Covariance Risk Value Model for Currency Market

Povilas Aniūnas1, Jonas Nedzveckas2, Rytis Krušinskas3

1

Vilniaus universitetas

Muitinės g. 5, LT-3000, Kaunas

2

Kauno kolegija

Puodžių g. 11, LT-44295, Kaunas

3

Kauno technmologijos universitetas

K. Donelaičio g. 73, LT-44029, Kaunas

and is successfully applied till these days. The main

shortcomings of technical analysis are named as their

uncertainty and ambiguity. Majority of technical

analysis researchers and practices (Eng, 1988; Niemira,

Zukowski, 1994; Frost, Prechter, 1998; and others)

aimed to describe mathematically technical analysis

methods and in this way to develop almost automated

trade systems (strategies) delivering one-way currency

trade solutions or signals. However, there is no

absolutely acceptable and applied model for all currency

market situations in the world, as at the same time the

market could possibly lose its profitability because of

this model existence. Technical analysis researchers

improve this methodology all the time to include state

of the art tendencies of the market.

It is also very important to evaluate acceptable risk

level when investment models are analyzed. For risk

valuation different mathematical – statistical models are

used too. But most models estimate risk separately from

trade models and usually with already known trade

results. That is why some models become more popular

and allow to valuate risk, moderate it calculating highest

possible open foreign currency positions. In this case,

only integration of risk management and trade parts

leads to profitable investing in currency markets.

Risk management analysis is widely discussed by

Lithuania’s researchers such as Vaškelaitis (2003),

Titarenko (2000), Grigaravičius (2003), Mackevičius

(2005) and others. Recently risk management,

especially market risk management, was analyzed by

Dzikevičius (doctoral thesis “Trading...