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Estimating and forecasting instantaneous volatility through a duration model : An assessment based on VaR

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  • Takayuki Morimoto

Abstract

In order to forecast one-step ahead volatility, we calculated jump intensity by using estimated parameters of a duration model of price change. In this procedure, we do not assume any distribution on log-return. Although we do not make any distributional assumption, we may practically choose a suitable distribution e.g. Normal, student, etc, including empirical density, when we calculate a VaR (Value at Risk) with an instantaneous volatility to check the prediction performance. Furthermore, we compare the goodness of fit among assumed distributions of log-return. We find that fat tail distributions such as NIG, Laplace, are well fitted to the actual high frequency data listed on the Tokyo stock exchange 1st section from 4 Jan. 2001 to 28 June 2001

Suggested Citation

  • Takayuki Morimoto, 2004. "Estimating and forecasting instantaneous volatility through a duration model : An assessment based on VaR," Econometric Society 2004 Far Eastern Meetings 592, Econometric Society.
  • Handle: RePEc:ecm:feam04:592
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    File URL: http://repec.org/esFEAM04/up.13801.1080306863.pdf
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    References listed on IDEAS

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    1. Pierre Giot, 2005. "Market risk models for intraday data," The European Journal of Finance, Taylor & Francis Journals, vol. 11(4), pages 309-324.
    2. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
    3. repec:adr:anecst:y:2000:i:60:p:05 is not listed on IDEAS
    4. GIOT, Pierre, 1999. "Time transformations, intraday data and volatility models," CORE Discussion Papers 1999044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
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    More about this item

    Keywords

    High frequency data; Duration model; Instantaneous volatility; VaR;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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