Comparison of Volatility Measures: a Risk Management Perspective
Christian Brownlees () and
Giampiero Gallo ()
Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"
Volatility measurement has received a boost from the availability of ultra–high frequency data (UHFD) sampled at different frequencies which need to be complemented by appropriate methods to project volatility behavior. In this paper we take a risk management perspective and address the issue of forecasting Value–at–Risk (VaR) using different volatility measures: realized volatility, bipower realized volatility, two scales realized volatility, as well as the daily range. For the sample and assets chosen, volatility clustering occurs around a changing level in average volatility; other features such as persistence and shape appear to change with the UHFD sampling frequency. Building on the existing literature, we propose a novel modeling approach that captures the features of the series called P–Spline Multiplicative Error Model. Such an approach consists of a dynamic model with a flexible trend specification bonded with a penalized maximum likelihood estimation strategy that enhances forecasting ability. Results show that exploiting UHFD volatility measures, VaR predictive ability is improved upon relative to a baseline GARCH approach but the range is not outperformed and that there are relevant gains from modeling volatility trends and the nonnormality of the conditional return distribution.
Keywords: Volatility; Copula functions; Forecasting; GARCH; MEM. (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://local.disia.unifi.it/ricerca/pubblicazioni ... s/2007/wp2007_15.pdf (application/pdf)
Journal Article: Comparison of Volatility Measures: a Risk Management Perspective (2010)
Working Paper: Comparison of Volatility Measures: a Risk Management Perspective (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fir:econom:wp2007_15
Access Statistics for this paper
More papers in Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti" Viale G.B. Morgagni, 59 - I-50134 Firenze - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Fabrizio Cipollini ().