title: Forecasting densities of exchange rates in R
body: <p>This is my first post here so I am not quite sure how to frame a question here but I will try my best
  I am trying to forecast densities of daily exchange rates, I have chosen EUR/USD as my currency pair that I'd like to forecast. I am using GARCH models to do the forecast. I have done my coding using "rugarch" package. The code looks like this </p>
  
  <pre><code>&gt; ex1 &lt;- as.xts(DEXUSEU) #DEXUSEU is the daily data of exchange rates
  &gt; ex2 &lt;- ex1[!is.na(ex1)] 
  &gt; lex2 &lt;- 100*log((ex2[2:Nd,])/(ex2[1:(Nd-1),])) #taking log differences, it 
    has 4496 observations
  
  
  
  &gt; model1=ugarchspec (variance.model = list(model = "sGARCH", garchOrder = c(1, 
    1), submodel = NULL, external.regressors = NULL, variance.targeting = 
    FALSE),mean.model = list(armaOrder = c(0, 0), include.mean = TRUE, 
    archm = FALSE, archpow = 1, arfima = FALSE, external.regressors = NULL, 
    archex = FALSE),distribution.model = "std") #specifying garch model with 
    student t distribution
  
  
  &gt; modelfit1=ugarchfit(model,data=lex2,out.sample = 2000) #fitting model
  
  
  &gt; modelroll1=ugarchroll (
    model1, data=lex2, n.ahead = 1, forecast.length = 2000,
    n.start = NULL, refit.every = 50, refit.window = c("rolling"),
    window.size = NULL, solver = "hybrid", fit.control = list(),
    solver.control = list(), calculate.VaR = TRUE, VaR.alpha = 0.01,
    cluster = NULL, keep.coef = TRUE) #doing rolling window forecast
  
  &gt; plot(modelroll1,which=1)
  </code></pre>
  
  <p>Thats how the density forecast looks like, and i am quite sure that something is wrong here, it shouldn't look like this:</p>
  
  <p><a href="https://i.stack.imgur.com/Xcbxj.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/Xcbxj.png" alt="enter image description here"></a></p>
  
  <p>Can anybody please help and tell me what I did wrong. I can provide additional data/information if needed. I am just not sure what else to provide as this is my first post here. Any kind of help would be very much appreciated.</p>