EconPapers    
Economics at your fingertips  
 

Practical Volatility Modeling for Financial Market Risk Management

Ahmed Shamiri (), Abu Hassan Shaari and Zaidi Isa

MPRA Paper from University Library of Munich, Germany

Abstract: Being able to choose most suitable volatility model and distribution specification is a more demanding task. This paper introduce an analyzing procedure using the Kullback-Leibler information criteria (KLIC) as a statistical tool to evaluate and compare the predictive abilities of possibly misspecified density forecast models. The main advantage of this statistical tool is that we use the censored likelihood functions to compute the tail minimum of the KLIC, to compare the performance of a density forecast models in the tails. We include an illustrative simulation and an empirical application to compare a set of distributions, including symmetric/asymmetric distribution, and a family of GARCH volatility models. We highlight the use of our approach to a daily index, the Kuala Lumpur Composite index (KLCI). Our results shows that the choice of the conditional distribution appear to be a more dominant factor in determining the adequacy of density forecasts than the choice of volatility model. Furthermore, the results support the Skewed for KLCI return distribution.

Keywords: Density forecast; Conditional distribution; Forecast accuracy; KLIC; GARCH models (search for similar items in EconPapers)
JEL-codes: C16 C32 C52 D53 (search for similar items in EconPapers)
Date: 2007-08-20, Revised 2008-05-15
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fmk, nep-for and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/9790/1/MPRA_paper_9790.pdf original version (application/pdf)

Related works:
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:pra:mprapa:9790

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2023-11-11
Handle: RePEc:pra:mprapa:9790