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Alternative Models to extract asset volatility: a comparative study

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  • Pedro L. Valls Pereira
  • Hotta, L.K.
  • Souza, L.A.R.

Abstract

This paper presents an empirical comparison of the estimation of the volatility of three Brazilian financial series: a Brazilian Brady bond (the Cbond), a stock (Telebrás PN) and the Brazilian Real/US Dollar exchange rate, using different modelling methods. The models used are: XARCH family, Stochastic Volatility (SV) and the switching in the variance model (SWARCH). The comparison is done using three criteria: loss functions, which compare the square of the estimated volatility with the instantaneous volatility, a procedure proposed by Herencia et alii (1998) which used prediction confidence intervals and one-stepahead prediction, and a prediction exercise for the last 100 observations. In general the SV model presented the best performance although it is dominated by other models in some criteria.
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  • Pedro L. Valls Pereira & Hotta, L.K. & Souza, L.A.R., 1999. "Alternative Models to extract asset volatility: a comparative study," Finance Lab Working Papers flwp_14, Finance Lab, Insper Instituto de Ensino e Pesquisa.
    • Handle: RePEc:ibm:finlab:flwp_14
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    References listed on IDEAS

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    Cited by:

    1. Marçal, Emerson Fernandes & Pereira, Pedro L. Valls, 2008. "Testing the Hypothesis of Contagion Using Multivariate Volatility Models," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 28(2), November.
    2. Fajardo, José & Farias, Aquiles, 2004. "Generalized Hyperbolic Distributions and Brazilian Data," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 24(2), November.
    3. Fajardo, J. & Cajueiro, D. O., 2003. "Volatility Estimation and Option Pricing with Fractional Brownian Motion," Finance Lab Working Papers flwp_53, Finance Lab, Insper Instituto de Ensino e Pesquisa.
    4. Marçal, Emerson F. & Valls Pereira, Pedro L., 2008. "Testando A Hipótese De Contágio A Partir De Modelos Multivariados De Volatilidade [Testing the contagion hypotheses using multivariate volatility models]," MPRA Paper 10356, University Library of Munich, Germany.
    5. Douglas Gomes dos Santos & Flávio Augusto Ziegelmann, 2008. "Estimação de volatilidade em períodos de crise: Modelos aditivos semi-paramétricos versus modelos versus modelo Garch," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807201932370, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Maurício Yoshinori Une & Marcelo Savino Portugal, 2005. "Fear of disruption: a model of Markov-switching regimes for the Brazilian country risk conditional volatility," Econometrics 0509005, University Library of Munich, Germany.
    7. Oliveira, André Barbosa & Pereira, Pedro L. Valls, 2018. "Uncertainty times for portfolio selection at financial market," Textos para discussão 473, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    8. Barbachan, José Fajardo & Schuschny, Andrés Ricardo & Silva, André de Castro, 2001. "Lévy processes and the Brazilian market," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 21(2), November.

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