ALTERNATIVE MODELS TO EXTRACT ASSET VOLATILITY: A COMPARATIVE STUDY

Pedro Valls Pereira, Luiz Hotta, Luiz Alvares R. de Souza and Nuno Miguel C. G. de Almeida

Brazilian Review of Econometrics, 1999, vol. 19, issue 1

Abstract: This paper presents an empirical comparison of the estimation of the volatility of three Brazilian financial series: a Brazilian Brady bond (the Cbond), a stock (Telebrás PN) and the Brazilian Real/US Dollar exchange rate, using different modelling methods. The models used are: XARCH family, Stochastic Volatility (SV) and the switching in the variance model (SWARCH). The comparison is done using three criteria: loss functions, which compare the square of the estimated volatility with the instantaneous volatility, a procedure proposed by Herencia et alii (1998) which used prediction confidence intervals and one-stepahead prediction, and a prediction exercise for the last 100 observations. In general the SV model presented the best performance although it is dominated by other models in some criteria.

Date: 1999
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Working Paper: Alternative Models to extract asset volatility: a comparative study (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:19:y:1999:i:1:a:2793

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