Score Driven Exponentially Weighted Moving Averages and Value-at-Risk Forecasting

Andre Lucas and Xin Zhang

No 309, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: A simple methodology is presented for modeling time variation in volatilities and other higher-order moments using a recursive updating scheme similar to the familiar RiskMetricsTM approach. We update parameters using the score of the forecasting distribution. This allows the parameter dynamics to adapt automatically to any nonnormal data features and robusti es the subsequent estimates. The new approach nests several of the earlier extensions to the exponentially weighted moving average (EWMA) scheme. In addition, it can easily be extended to higher dimensions and alternative forecasting distributions. The method is applied to Value-at-Risk forecasting with (skewed) Student's t distributions and a time-varying degrees of freedom and/or skewness parameter. We show that the new method is competitive to or better than earlier methods in forecasting volatility of individual stock returns and exchange rate returns.

Keywords: dynamic volatilities; dynamic higher-order moments; integrated generalized autoregressive score models; Exponentially Weighted Moving Average (EWMA); Value-at-Risk (VaR) (search for similar items in EconPapers)
JEL-codes: C51 C52 C53 G15 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-09-01
New Economics Papers: this item is included in nep-for, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.riksbank.se/Documents/Rapporter/Working ... 9_revised_150918.pdf (application/pdf)

Related works:
Journal Article: Score-driven exponentially weighted moving averages and Value-at-Risk forecasting (2016)
Working Paper: Score Driven exponentially Weighted Moving Average and Value-at-Risk Forecasting (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0309

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().