Forecasting Volatility Using A Continuous Time Model

Helena Veiga

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper evaluates the forecasting performance of a continuous stochastic volatility model with two factors of volatility (SV2F) and compares it to those of GARCH and ARFIMA models. The empirical results show that the volatility forecasting ability of the SV2F model is better than that of the GARCH and ARFIMA models, especially when volatility seems to change pattern. We use ex-post volatility as a proxy of the realized volatility obtained from intraday data and the forecasts from the SV2F are calculated using the reprojection technique proposed by Gallant and Tauchen (1998).

Keywords: Efficient Method of Moments (EMM); Reprojection; Factors of Volatility; Fractional Integration; Volatility Forecasting. (search for similar items in EconPapers)
JEL-codes: C10 G13 (search for similar items in EconPapers)
Pages: 32
Date: 2003-09-04
New Economics Papers: this item is included in nep-cfn, nep-ecm, nep-ets, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:584.03

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