A Low Price Correction for Improved Volatility Estimation and Forecasting

George-Jason Siouris and Alex Karagrigoriou
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George-Jason Siouris: Department of Mathematics, University of the Aegean, GR-83200 Karlovasi, Samos, Greece
Alex Karagrigoriou: Department of Mathematics, University of the Aegean, GR-83200 Karlovasi, Samos, Greece

Risks, 2017, vol. 5, issue 3, 1-14

Abstract: In this work, we focus on volatility estimation which plays a crucial role in risk analysis and management. In order to improve value at risk (VaR) forecasts, we discuss the concept of low price effect and introduce the low price correction which does not require any additional parameters and instead of returns it takes into account the prices of the asset. Judgement on the forecasting quality of the proposed methodology is based on both the relative number of violations and VaR volatility. For illustrative purposes, a real example from the Athens Stock Exchange is fully explored.

Keywords: MA; EWMA; ARCH; GARCH; APARCH; FIGARCH; VaR; violation ratios; leverage effect; low price effect; backtesting (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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