Weekly volatility forecasts with applications to risk management

David G. McMillan and Alan E.H. Speight

Journal of Risk Finance, 2007, vol. 8, issue 3, 214-229

Abstract: Purpose - In this paper weekly volatility forecasts are considered with applications to risk management; in particular hedge ratios and VaR calculations, with the aim of identifying the most appropriate model for risk management practice. Design/methodology/approach - The study considers a variety of models, including those typically employed within the risk management industry, such as averaging and smoothing techniques, as well as those favored in academic circles, such as the GARCH genre of models, and a more recent realized volatility approach which incorporates both the simplicity in construction favored by the finance industry and the flexibility and theoretical underpinnings recommended by academics. Findings - The results support the view that this realized volatility measure provides not only superior volatility forecastsper se, but also allows for improved hedge ratio and VaR calculations. Practical implications - The research findings carry practical implications for the conduct of risk management, namely that volatility forecasts are best obtained using the realized volatility approach. Originality/value - It is therefore proposed that a future direction for risk management practice may be to utilize such measures, while more generally it is hoped that such approaches may improve the cross‐fertilization of ideas and practice between the academic and practitioner communities.

Keywords: Prices; Forecasting; Risk management (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:15265940710750477

DOI: 10.1108/15265940710750477

Access Statistics for this article

Journal of Risk Finance is currently edited by Nawazish Mirza

More articles in Journal of Risk Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().