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Comparison of Volatility Measures: a Risk Management Perspective

Christian Brownlees and Giampiero Gallo ()

Journal of Financial Econometrics, 2010, vol. 8, issue 1, 29-56

Abstract: In this paper we address the issue of forecasting Value--at--Risk (VaR) using different volatility measures: realized volatility, bipower realized volatility, two-scales realized volatility, realized kernel, as well as the daily range. We propose a dynamic model with a flexible trend specification bonded with a penalized maximum likelihood estimation strategy: the P-spline multiplicative error model. Exploiting ultra-high-frequency data (UHFD) volatility measures, VaR predictive ability is considerably improved upon relative to a baseline GARCH but not so relative to the range; there are gains from modeling volatility trends and from using realized kernels that are robust to dependent microstructure noise. Copyright The Author 2009. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oupjournals.org, Oxford University Press.

Date: 2010
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Citations: View citations in EconPapers (107)

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Working Paper: Comparison of Volatility Measures: a Risk Management Perspective (2008) Downloads
Working Paper: Comparison of Volatility Measures: a Risk Management Perspective (2007) Downloads
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Journal of Financial Econometrics is currently edited by Allan Timmermann and Fabio Trojani

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