The benefit of modeling jumps in realized volatility for risk prediction: Evidence from Chinese mainland stocks

Yin Liao ()

Pacific-Basin Finance Journal, 2013, vol. 23, issue C, 25-48

Abstract: Recent literature has focused on realized volatility models to predict financial risk. This paper studies the benefit of explicitly modeling jumps in this class of models for value at risk (VaR) prediction. Several popular realized volatility models are compared in terms of their VaR forecasting performances through a Monte Carlo study and an analysis based on empirical data of eight Chinese stocks. The results suggest that careful modeling of jumps in realized volatility models can largely improve VaR prediction, especially for emerging markets where jumps play a stronger role than those in developed markets.

Keywords: Value at risk (VaR); Realized volatility; Jumps (search for similar items in EconPapers)
JEL-codes: C13 C32 C52 C53 G17 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:23:y:2013:i:c:p:25-48

DOI: 10.1016/j.pacfin.2013.01.002

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