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Computationally efficient bootstrap prediction intervals for returns and volatilities in ARCH and GARCH processes

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Author Info

  • Bei Chen
  • Yulia R. Gel
  • N. Balakrishna
  • Bovas Abraham
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    Abstract

    We propose a novel, simple, efficient and distribution-free re‐sampling technique for developing prediction intervals for returns and volatilities following ARCH/GARCH models. In particular, our key idea is to employ a Box–Jenkins linear representation of an ARCH/GARCH equation and then to adapt a sieve bootstrap procedure to the nonlinear GARCH framework. Our simulation studies indicate that the new re‐sampling method provides sharp and well calibrated prediction intervals for both returns and volatilities while reducing computational costs by up to 100 times, compared to other available re‐sampling techniques for ARCH/GARCH models. The proposed procedure is illustrated by an application to Yen/U.S. dollar daily exchange rate data. Copyright (C) 2010 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/for.1197
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

    Volume (Year): 30 (2011)
    Issue (Month): 1 (January)
    Pages: 51-71

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    Handle: RePEc:jof:jforec:v:30:y:2011:i:1:p:51-71

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

    Related research

    Keywords: financial time series ; volatility forecasting ; bootstrap ; non‐Gaussian distribution ;

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