Arbeitspapier
Forecasting Volatility with Copula-Based Time Series Models
This paper develops a novel approach to modeling and forecasting realized volatility (RV) measures based on copula functions. Copula-based time series models can capture relevant characteristics of volatility such as nonlinear dynamics and long-memory type behavior in a flexible yet parsimonious way. In an empirical application to daily volatility for S&P500 index futures, we find that the copula-based RV (C-RV) model outperforms conventional forecasting approaches for one-day ahead volatility forecasts in terms of accuracy and efficiency. Among the copula specifications considered, the Gumbel C-RV model achieves the best forecast performance, which highlights the importance of asymmetry and upper tail dependence for modeling volatility dynamics. Although we find substantial variation in the copula parameter estimates over time, conditional copulas do not improve the accuracy of volatility forecasts.
- Language
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Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. 11-125/4
- Classification
-
Wirtschaft
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Forecasting Models; Simulation Methods
Financial Econometrics
Financial Forecasting and Simulation
- Subject
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Nonlinear dependence
long memory
copulas
volatility forecasting
- Event
-
Geistige Schöpfung
- (who)
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Sokolinskiy, Oleg
van Dijk, Dick
- Event
-
Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
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Amsterdam and Rotterdam
- (when)
-
2011
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Sokolinskiy, Oleg
- van Dijk, Dick
- Tinbergen Institute
Time of origin
- 2011
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