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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/26809

Title: A Multiple Indicators Model For Volatility Using Intra-Daily Data
Authors: Engle, Robert F.
Gallo, Giampiero M.
Keywords: volatility modeling
volatility forecasting
GARCH
VIX
high-low range
realized volatility
Issue Date: 12-Oct-2003
Series/Report no.: S-DRP-03-17
Abstract: Many ways exist to measure and model financial asset volatility. In principle, as the frequency of the data increases, the quality of forecasts should improve. Yet, there is no consensus about a “true” or "best" measure of volatility. In this paper we propose to jointly consider absolute daily returns, daily high-low range and daily realized volatility to develop a forecasting model based on their conditional dynamics. As all are non-negative series, we develop a multiplicative error model that is consistent and asymptotically normal under a wide range of specifications for the error density function. The estimation results show significant interactions between the indicators. We also show that one-month-ahead forecasts match well (both in and out of sample) the market-based volatility measure provided by an average of implied volatilities of index options as measured by VIX.
URI: http://hdl.handle.net/2451/26809
Appears in Collections:Derivatives Research

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