A practical guide to forecasting financial market volatility

238 Pages·2005·1.09 MB·english

by  Ser-Huang Poon

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A Practical Guide to Forecasting
Financial Market Volatility
Ser-Huang Poon
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A Practical Guide to Forecasting
Financial Market Volatility
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ForothertitlesintheWileyFinanceseries
pleaseseewww.wiley.com/finance
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A Practical Guide to Forecasting
Financial Market Volatility
Ser-Huang Poon
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LibraryofCongressCataloging-in-PublicationData
Poon,Ser-Huang.
Apracticalguideforforecastingfinancialmarketvolatility/SerHuang
Poon.
p.cm.—(TheWileyfinanceseries)
Includesbibliographicalreferencesandindex.
ISBN-13978-0-470-85613-0(cloth:alk.paper)
ISBN-100-470-85613-0(cloth:alk.paper)
1.Options(Finance)—Mathematicalmodels. 2.Securities—Prices—
Mathematicalmodels. 3.Stockpriceforecasting—Mathematicalmodels. I.Title.
II.Series.
HG6024.A3P66 2005
332.64(cid:2)01(cid:2)5195—dc22 2005005768
BritishLibraryCataloguinginPublicationData
AcataloguerecordforthisbookisavailablefromtheBritishLibrary
ISBN-13 978-0-470-85613-0(HB)
ISBN-10 0-470-85613-0(HB)
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I dedicate this book to my mother
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Contents
ForewordbyCliveGranger xiii
Preface xv
1 VolatilityDefinitionandEstimation 1
1.1 Whatisvolatility? 1
1.2 Financialmarketstylizedfacts 3
1.3 Volatilityestimation 10
1.3.1 Usingsquaredreturnasaproxyfor
dailyvolatility 11
1.3.2 Usingthehigh–lowmeasuretoproxyvolatility 12
1.3.3 Realizedvolatility,quadraticvariation
andjumps 14
1.3.4 Scalingandactualvolatility 16
1.4 Thetreatmentoflargenumbers 17
2 VolatilityForecastEvaluation 21
2.1 Theformof X 21
t
2.2 Errorstatisticsandtheformofε 23
t
2.3 Comparingforecasterrorsofdifferentmodels 24
2.3.1 DieboldandMariano’sasymptotictest 26
2.3.2 DieboldandMariano’ssigntest 27
2.3.3 DieboldandMariano’sWilcoxonsign-ranktest 27
2.3.4 Seriallycorrelatedlossdifferentials 28
2.4 Regression-basedforecastefficiencyand
orthogonalitytest 28
2.5 Otherissuesinforecastevaluation 30
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