Using information quality for volatility model combinations

Vasyl Golosnoy and Yarema Okhrin

Quantitative Finance, 2015, vol. 15, issue 6, 1055-1073

Abstract: This paper proposes updated methodology for volatility model combinations which account for the informational content of innovations. An adaptive measure of information quality serves for the selection of model weights in order to improve daily volatility forecasts. The information quality proxy is related to the size of unexpected shocks in the volatility process. Our approach is illustrated in an empirical study with German stock market data.

Date: 2015
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DOI: 10.1080/14697688.2012.739728

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