Dimitrios D. Thomakos () (University of Peloponnese, Greece and The Rimini Centre for Economics Analysis, Italy.) Dimitris N. Politis () (University of California, San Diego, USA)
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In this paper we contribute several new results on the NoVaS transformation approach for volatility forecasting introduced by Politis (2003a,b, 2007). In particular: (a) we introduce an alternative target distribution (uniform); (b) we present a new method for volatility forecasting using NoVaS ; (c) we show that the NoVaS methodology is applicable in situations where (global) stationarity fails such as the cases of local stationarity and/or structural breaks; (d) we show how to apply the NoVaS ideas in the case of returns with asymmetric distribution; and finally (e) we discuss the application of NoVaS to the problem of estimating value at risk (VaR). The NoVaS methodology allows for a flexible approach to inference and has immediate applications in the context of short time series and series that exhibit local behavior (e.g. breaks, regime switching etc.) We conduct an extensive simulation study on the predictive ability of the NoVaS approach and find that NoVaS forecasts lead to a much ÔtighterÕ distribution of the forecasting performance measure for all data generating processes. This is especially relevant in the context of volatility predictions for risk management. We further illustrate the use of NoVaS for a number of real datasets and compare the forecasting performance of NoVaS -based volatility forecasts with realized and range-based volatility measures.
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Paper provided by Rimini Centre for Economic Analysis in its series Working Paper Series with number
44-07.
References listed on IDEAS 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.:
Torben G. Andersen & Tim Bollerslev & Nour Meddahi, 2004.
"Analytical Evaluation Of Volatility Forecasts,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1079-1110, November.
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