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Predictive density construction and accuracy testing with multiple possibly misspecified diffusion models

Author

Listed:
  • Valentina Corradi

    (Department of Economics - University of Warwick [Coventry])

  • Norman R. Swanson

    (Department of Economics - RU - Rutgers, The State University of New Jersey [New Brunswick] - Rutgers - Rutgers University System)

Abstract

This paper develops tests for comparing the accuracy of predictive densities derived from (possibly misspecified) diffusion models. In particular, we first outline a simple simulation-based framework for constructing predictive densities for one-factor and stochastic volatility models. We then construct tests that are in the spirit of Diebold and Mariano (1995) and White (2000). In order to establish the asymptotic properties of our tests, we also develop a recursive variant of the nonparametric simulated maximum likelihood estimator of Fermanian and Salani é (2004). In an empirical illustration, the predictive densities from several models of the one-month federal funds rates are compared.

Suggested Citation

  • Valentina Corradi & Norman R. Swanson, 2011. "Predictive density construction and accuracy testing with multiple possibly misspecified diffusion models," Post-Print hal-00796745, HAL.
    • Handle: RePEc:hal:journl:hal-00796745
    DOI: 10.1016/j.jeconom.2010.12.009
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    Cited by:

    1. Swanson, Norman R. & Urbach, Richard, 2015. "Prediction and simulation using simple models characterized by nonstationarity and seasonality," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 312-323.
    2. Diep Duong & Norman Swanson, 2013. "Density and Conditional Distribution Based Specification Analysis," Departmental Working Papers 201312, Rutgers University, Department of Economics.
    3. Cai, Lili & Swanson, Norman R., 2011. "In- and out-of-sample specification analysis of spot rate models: Further evidence for the period 1982-2008," Journal of Empirical Finance, Elsevier, vol. 18(4), pages 743-764, September.
    4. Corradi, Valentina & Silvapulle, Mervyn J. & Swanson, Norman R., 2018. "Testing for jumps and jump intensity path dependence," Journal of Econometrics, Elsevier, vol. 204(2), pages 248-267.
    5. Zu, Yang & Boswijk, H. Peter, 2017. "Consistent nonparametric specification tests for stochastic volatility models based on the return distribution," Journal of Empirical Finance, Elsevier, vol. 41(C), pages 53-75.
    6. Zu, Y., 2015. "Consistent nonparametric specification tests for stochastic volatility models based on the return distribution," Working Papers 15/02, Department of Economics, City University London.
    7. Zu, Yang, 2015. "Nonparametric specification tests for stochastic volatility models based on volatility density," Journal of Econometrics, Elsevier, vol. 187(1), pages 323-344.

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    More about this item

    Keywords

    C22; C51; Block bootstrap; Diffusion processes; Jumps; Nonparametric simulated quasi maximum likelihood; Parameter estimation error; Recursive estimation; Stochastic volatility;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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