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Perspectives on Risk Measurement - A Critical Assessment of PC-GARCH Against the Main Volatility Forecasting Models
journal contribution
posted on 2023-05-18, 09:15 authored by Matei, MThe paper makes a critical assessment of the Principal Components-GARCH (PCGARCH) model and argues why, when dealing with hundreds or thousands of variables, this model comes up as the most appropriate to be used. The suitability originates from the perspective of quality/cost ratio of volatility forecasts, allowing for a trade-off between quality and costs when computational efforts are significant. PCGARCH not only provides a method that allows for simpler volatility modeling, reducing significantly the computational time and getting rid of any problem that may arise from complex data manipulations, but also improves the modeling process quality by ensuring a stricter control of noise due to more stable correlation estimates.
History
Publication title
Romanian Journal of Economic ForecastingVolume
15Article number
6Number
6Pagination
95-115ISSN
1582-6163Department/School
TSBEPublisher
Institute of Economic Forecasting, Romanian AcademyPlace of publication
BucharestRights statement
Copyright 2012 Institute for Economic ForecastingRepository Status
- Restricted