Can LSTM outperform volatility-econometric models?

German Rodikov and Nino Antulov-Fantulin

Papers from arXiv.org

Abstract: Volatility prediction for financial assets is one of the essential questions for understanding financial risks and quadratic price variation. However, although many novel deep learning models were recently proposed, they still have a "hard time" surpassing strong econometric volatility models. Why is this the case? The volatility prediction task is of non-trivial complexity due to noise, market microstructure, heteroscedasticity, exogenous and asymmetric effect of news, and the presence of different time scales, among others. In this paper, we analyze the class of long short-term memory (LSTM) recurrent neural networks for the task of volatility prediction and compare it with strong volatility-econometric models.

Date: 2022-02
New Economics Papers: this item is included in nep-big, nep-cmp, nep-cwa, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2202.11581

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