5,644 research outputs found
Volatility forecasting
Volatility has been one of the most active and successful areas of research in time series econometrics and economic forecasting in recent decades. This chapter provides a selective survey of the most important theoretical developments and empirical insights to emerge from this burgeoning literature, with a distinct focus on forecasting applications. Volatility is inherently latent, and Section 1 begins with a brief intuitive account of various key volatility concepts. Section 2 then discusses a series of different economic situations in which volatility plays a crucial role, ranging from the use of volatility forecasts in portfolio allocation to density forecasting in risk management. Sections 3, 4 and 5 present a variety of alternative procedures for univariate volatility modeling and forecasting based on the GARCH, stochastic volatility and realized volatility paradigms, respectively. Section 6 extends the discussion to the multivariate problem of forecasting conditional covariances and correlations, and Section 7 discusses volatility forecast evaluation methods in both univariate and multivariate cases. Section 8 concludes briefly. JEL Klassifikation: C10, C53, G1
"On Properties of Separating Information Maximum Likelihood Estimation of Realized Volatility and Covariance with Micro-Market Noise"
For estimating the realized volatility and covariance by using high frequency data, we have introduced the Separating Information Maximum Likelihood (SIML) method when there are possibly micro-market noises by Kunitomo and Sato (2008a, 2008b, 2010a, 2010b). The resulting estimator is simple and it has the representation as a specific quadratic form of returns. We show that the SIML estimator has reasonable asymptotic properties; it is consistent and it has the asymptotic normality (or the stable convergence in the general case) when the sample size is large under general conditions including some non-Gaussian processes and some volatility models. Based on simulations, we find that the SIML estimator has reasonable finite sample properties and thus it would be useful for practice. The SIML estimator has the asymptotic robustness properties in the sense it is consistent when the noise terms are weakly dependent and they are endogenously correlated with the efficient market price process. We also apply our method to an analysis of Nikkei-225 Futures, which has been the major stock index in the Japanese financial sector.
Estimating the quadratic covariation matrix from noisy observations: Local method of moments and efficiency
An efficient estimator is constructed for the quadratic covariation or
integrated co-volatility matrix of a multivariate continuous martingale based
on noisy and nonsynchronous observations under high-frequency asymptotics. Our
approach relies on an asymptotically equivalent continuous-time observation
model where a local generalised method of moments in the spectral domain turns
out to be optimal. Asymptotic semi-parametric efficiency is established in the
Cram\'{e}r-Rao sense. Main findings are that nonsynchronicity of observation
times has no impact on the asymptotics and that major efficiency gains are
possible under correlation. Simulations illustrate the finite-sample behaviour.Comment: Published in at http://dx.doi.org/10.1214/14-AOS1224 the Annals of
Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical
Statistics (http://www.imstat.org
Detecting gradual changes in locally stationary processes
In a wide range of applications, the stochastic properties of the observed
time series change over time. The changes often occur gradually rather than
abruptly: the properties are (approximately) constant for some time and then
slowly start to change. In many cases, it is of interest to locate the time
point where the properties start to vary. In contrast to the analysis of abrupt
changes, methods for detecting smooth or gradual change points are less
developed and often require strong parametric assumptions. In this paper, we
develop a fully nonparametric method to estimate a smooth change point in a
locally stationary framework. We set up a general procedure which allows us to
deal with a wide variety of stochastic properties including the mean,
(auto)covariances and higher moments. The theoretical part of the paper
establishes the convergence rate of the new estimator. In addition, we examine
its finite sample performance by means of a simulation study and illustrate the
methodology by two applications to financial return data.Comment: Published at http://dx.doi.org/10.1214/14-AOS1297 in the Annals of
Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical
Statistics (http://www.imstat.org
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