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SPEC model selection algorithm for ARCH models: an options pricing evaluation framework

Author

Listed:
  • Stavros Degiannakis
  • Evdokia Xekalaki

Abstract

A number of single ARCH model-based methods of predicting volatility are compared to Degiannakis and Xekalaki's (2005) poly-model standardized prediction error criterion (SPEC) algorithm method in terms of profits from trading actual options of the S&P500 index returns. The results show that traders using the SPEC for deciding which model's forecasts to use at any given point in time achieve the highest profits.

Suggested Citation

  • Stavros Degiannakis & Evdokia Xekalaki, 2008. "SPEC model selection algorithm for ARCH models: an options pricing evaluation framework," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 419-423.
    • Handle: RePEc:taf:raflxx:v:4:y:2008:i:6:p:419-423
    DOI: 10.1080/17446540701765258
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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