Nonlinear Combination of Financial Forecast with Genetic Algorithm
AbstractComplexity in the financial markets requires intelligent forecasting models for return volatility. In this paper, historical simulation, GARCH, GARCH with skewed student-t distribution and asymmetric normal mixture GRJ-GARCH models are combined with Extreme Value Theory Hill by using artificial neural networks with genetic algorithm as the combination platform. By employing daily closing values of the Istanbul Stock Exchange from 01/10/1996 to 11/07/2006, Kupiec and Christoffersen tests as the back-testing mechanisms are performed for forecast comparison of the models. Empirical findings show that the fat-tails are more properly captured by the combination of GARCH with skewed student-t distribution and Extreme Value Theory Hill. Modeling return volatility in the emerging markets needs “intelligent” combinations of Value-at-Risk models to capture the extreme movements in the markets rather than individual model forecast.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2488.
Date of creation: 01 Feb 2007
Date of revision:
Forecast combination; Artificial neural networks; GARCH models; Extreme value theory; Christoffersen test;
Find related papers by JEL classification:
- G0 - Financial Economics - - General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-09 (All new papers)
- NEP-CMP-2007-04-09 (Computational Economics)
- NEP-ECM-2007-04-09 (Econometrics)
- NEP-ETS-2007-04-09 (Econometric Time Series)
- NEP-FOR-2007-04-09 (Forecasting)
- NEP-RMG-2007-04-09 (Risk Management)
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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- Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.
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