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Real-Time Multivariate Density Forecast Evaluation and Calibration: Monitoring the Risk of High-Frequency Returns on Foreign Exchange

  • Francis X. Diebold
  • Jinyong Hahn
  • Anthony S. Tay

We provide a framework for evaluating and improving multivariate density forecasts. Among other things, the multivariate framework lets us evaluate the adequacy of density forecasts involving cross-variable interactions, such as time-varying conditional correlations. We also provide conditions under which a technique of density forecast forecasts. Finally by recent advances in financial risk management, we provide a detailed application to multivariate high-frequency exchange rate density forecasts.

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File URL: http://www.nber.org/papers/w6845.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6845.

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Date of creation: Dec 1998
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Publication status: published as (Published as "Multivariate Density Forecast Evaluation and Calibration in Financial Risk Management: High Frequency Returns on Foreign Exchange") Review of Economics and Statistics, Vol. 81 (1999): 661-673.
Handle: RePEc:nbr:nberwo:6845
Note: IFM AP
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  1. Hardle, Wolfgang & Linton, Oliver, 1986. "Applied nonparametric methods," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 38, pages 2295-2339 Elsevier.
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  3. GHYSELS, Eric & HARVEY, Andrew & RENAULT, Eric, 1995. "Stochastic Volatility," CORE Discussion Papers 1995069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Baillie, Richard T. & Bollerslev, Tim, 1992. "Prediction in dynamic models with time-dependent conditional variances," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 91-113.
  5. Söderlind, Paul & Svensson, Lars E.O., 1997. "New Techniques to Extract Market Expectations from Financial Instruments," Seminar Papers 621, Stockholm University, Institute for International Economic Studies.
  6. Hansen, Bruce E, 1994. "Autoregressive Conditional Density Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 705-30, August.
  7. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June.
  8. Francis X. Diebold & Anthony S. Tay & Kenneth F. Wallis, 1998. "Evaluating Density Forecasts of Inflation: The Survey of Professional Forecasters," Working Papers 98-15, New York University, Leonard N. Stern School of Business, Department of Economics.
  9. Engle, Robert F & Gonzalez-Rivera, Gloria, 1991. "Semiparametric ARCH Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 345-59, October.
  10. Yacine Aït-Sahalia & Andrew W. Lo, . "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," CRSP working papers 332, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  11. Francis X. Diebold & Jose A. Lopez, 1996. "Forecast Evaluation and Combination," NBER Technical Working Papers 0192, National Bureau of Economic Research, Inc.
  12. Chatfield, Chris, 1993. "Calculating Interval Forecasts: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 143-44, April.
  13. William A. Brock & David A. Hsieh & Blake LeBaron, 1992. "Nonlinear Dynamics, Chaos, and Instability - Unix version," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262521725, June.
  14. Clements, M.P. & Smith J., 1998. "Evaluating The Forecast of Densities of Linear and Non-Linear Models: Applications to Output Growth and Unemployment," The Warwick Economics Research Paper Series (TWERPS) 509, University of Warwick, Department of Economics.
  15. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  16. repec:dgr:kubcen:19926 is not listed on IDEAS
  17. Chu, Chia-Shang James & Stinchcombe, Maxwell & White, Halbert, 1996. "Monitoring Structural Change," Econometrica, Econometric Society, vol. 64(5), pages 1045-65, September.
  18. Chatfield, Chris, 1993. "Calculating Interval Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 121-35, April.
  19. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
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