Perspectives on risk measurement: a critical assessment of PC-GARCH against the main volatility forecasting models
AbstractThe paper makes a critical assessment of the Principal Components-GARCH (PC-GARCH) model and argues why, when dealing with hundreds or thousands of variables, this model comes up as the most appropriate to be used. The suitability originates from the perspective of quality/cost ratio of volatility forecasts, allowing for a trade-off between quality and costs when computational efforts are significant. PC-GARCH not only provides a method that allows for simpler volatility modeling, reducing significantly the computational time and getting rid of any problem that may arise from complex data manipulations, but also improves the modeling process quality by ensuring a stricter control of noise due to more stable correlation estimates.
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Bibliographic InfoArticle provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.
Volume (Year): (2012)
Issue (Month): 1 (March)
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GARCH models; volatility forecasting; econometric models; evaluating forecasts; nonlinear time series;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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EERI Research Paper Series
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- Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
- Acatrinei, Marius & Gorun, Adrian & Marcu, Nicu, 2013. "A DCC-GARCH Model To Estimate the Risk to the Capital Market in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 136-148, March.
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