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Real-Time Multivariate Density Forecast Evaluation and Calibration: Monitoring the Risk of High-Frequency Returns on Foreign Exchange

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  • Francis X. Diebold
  • Jinyong Hahn
  • Anthony S. Tay

Abstract

We provide a framework for evaluating and improving multivariate density forecasts. Among other things, the multivariate framework lets us evaluate the adequacy of density forecasts involving cross-variable interactions, such as time-varying conditional correlations. We also provide conditions under which a technique of density forecast forecasts. Finally by recent advances in financial risk management, we provide a detailed application to multivariate high-frequency exchange rate density forecasts.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6845.

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Date of creation: Dec 1998
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Publication status: published as (Published as "Multivariate Density Forecast Evaluation and Calibration in Financial Risk Management: High Frequency Returns on Foreign Exchange") Review of Economics and Statistics, Vol. 81 (1999): 661-673.
Handle: RePEc:nbr:nberwo:6845

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  1. Söderlind, Paul & Svensson, Lars E.O., 1997. "New Techniques to Extract Market Expectations from Financial Instruments," Seminar Papers 621, Stockholm University, Institute for International Economic Studies.
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  7. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  8. Chatfield, Chris, 1993. "Calculating Interval Forecasts," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(2), pages 121-35, April.
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  18. Clements, M.P. & Smith J., 1998. "Evaluating The Forecast of Densities of Linear and Non-Linear Models: Applications to Output Growth and Unemployment," The Warwick Economics Research Paper Series (TWERPS) 509, University of Warwick, Department of Economics.
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Cited by:
  1. Lopez, Jose A. & Saidenberg, Marc R., 2000. "Evaluating credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 151-165, January.

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