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GARCH Framework (garch + framework)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

Forecasting volatility with support vector machine-based GARCH model

JOURNAL OF FORECASTING, Issue 4 2010
Shiyi Chen
Abstract Recently, support vector machine (SVM), a novel artificial neural network (ANN), has been successfully used for financial forecasting. This paper deals with the application of SVM in volatility forecasting under the GARCH framework, the performance of which is compared with simple moving average, standard GARCH, nonlinear EGARCH and traditional ANN-GARCH models by using two evaluation measures and robust Diebold,Mariano tests. The real data used in this study are daily GBP exchange rates and NYSE composite index. Empirical results from both simulation and real data reveal that, under a recursive forecasting scheme, SVM-GARCH models significantly outperform the competing models in most situations of one-period-ahead volatility forecasting, which confirms the theoretical advantage of SVM. The standard GARCH model also performs well in the case of normality and large sample size, while EGARCH model is good at forecasting volatility under the high skewed distribution. The sensitivity analysis to choose SVM parameters and cross-validation to determine the stopping point of the recurrent SVM procedure are also examined in this study. Copyright © 2009 John Wiley & Sons, Ltd. [source]

Does an index futures split enhance trading activity and hedging effectiveness of the futures contract?

THE JOURNAL OF FUTURES MARKETS, Issue 12 2006
Lars Nordén
Recently, several stock index futures exchanges have experimented with an altered contract design to make the contract more attractive and to increase investor accessibility. In 1998, the Swedish futures exchange (OM) split the OMX-index futures contract with a factor of 4:1, without altering any other aspect of the futures contract design. This isolated contract redesign enables a ceteris paribus analysis of the effects of a futures split. The purpose is to investigate whether the futures split affects the futures market trading activity, as well as hedging effectiveness and basis risk of the futures contract. A bivariate GARCH framework is used to jointly model stock index returns and changes in the futures basis, and to obtain measures of hedging efficiency and basis risk. Significantly increased hedging efficiency and lower relative basis risk is found following the split. In addition, evidence of an increased trading volume is found after the split, whereas the futures bid-ask spread appears to be unaffected by the split. The results are consistent with the idea that the futures split has enhanced trading activity and hedging effectiveness of the futures contract, without raising the costs of transacting at the futures market. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1169,1194, 2006 [source]

Spot-futures spread, time-varying correlation, and hedging with currency futures

THE JOURNAL OF FUTURES MARKETS, Issue 10 2006
Donald Lien
This article investigates the effects of the spot-futures spread on the return and risk structure in currency markets. With the use of a bivariate dynamic conditional correlation GARCH framework, evidence is found of asymmetric effects of positive and negative spreads on the return and the risk structure of spot and futures markets. The implications of the asymmetric effects on futures hedging are examined, and the performance of hedging strategies generated from a model incorporating asymmetric effects is compared with several alternative models. The in-sample comparison results indicate that the asymmetric effect model provides the best hedging strategy for all currency markets examined, except for the Canadian dollar. Out-of-sample comparisons suggest that the asymmetric effect model provides the best strategy for the Australian dollar, the British pound, the deutsche mark, and the Swiss franc markets, and the symmetric effect model provides a better strategy than the asymmetric effect model in the Canadian dollar and the Japanese yen. The worst performance is given by the naïve hedging strategy for both in-sample and out-of-sample comparisons in all currency markets examined. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1019,1038, 2006 [source]

Information flows and option bid/ask spreads

THE JOURNAL OF FUTURES MARKETS, Issue 12 2005
Fredrik Berchtold
This study analyzes two types of information flows in financial markets. The first type represents return information, where informed investors know whether the stock price will increase or decrease. The second type is labeled volatility information, where the direction of the stock price is unknown, but informed investors know that the stock price either will increase or decrease. Both information flows are estimated within the GARCH framework, approximated with the use of Swedish OMX stockindex and options strangle return shocks, respectively. The results show significant conditional stock-index and options strangle variance, although with notable differences. Stock-index return shocks exhibit a high level of variance persistence and an asymmetric initial impact to the variance. Option strangle shocks have a relatively low persistence level, but a higher and more symmetric initial impact. A time-series regression of call and put option bid/ask spreads is performed, relating the spreads to the information flows and other explanatory variables. The results show that call and put option bid/ask spreads are related to stock-index and options strangle return shocks, as well as the conditional stock-index variance. This is consistent with the view that market makers alter option spreads in response to return and volatility information flows, as well as the conditional stock-index variance.© 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1147,1172, 2005 [source]