Unpublished conference/Abstract (Scientific congresses and symposiums)
A new methodological approach for error distributions selection
Hambuckers, julien; Heuchenne, Cédric
2013 • 7th International Conference on Computational and Financial Econometrics and 6th International Conference of the ERCIM WG on Computational and Methodological Statistics
error distribution; variance misspecification; nonparametric; goodness-of-fit; selection test
Abstract :
[en] Since 2008 and its financial crisis, an increasing attention has been devoted to the selection of an adequate error distribution in risk models, in
particular for Value-at-Risk (VaR) predictions. We propose a robust methodology to select the most appropriate error distribution candidate, in a
classical multiplicative heteroscedastic model. In a first step, unlike to the traditional approach, we do not use any GARCH-type estimation of the
conditional variance. Instead, we propose to use a recently developed nonparametric procedure: the Local Adaptive Volatility Estimation (LAVE).
The motivation for using this method is to avoid a possible model misspecification for the conditional variance. In a second step, we suggest
a set of estimation and model selection procedures tests based on the so-obtained residuals. These methods enable to assess the global fit of a
given distribution as well as to focus on its behaviour in the tails. Finally, we illustrate our methodology on three time series (UBS stock returns,
BOVESPA returns and EUR/USD exchange rates).
Research Center/Unit :
QuantOM
Disciplines :
Quantitative methods in economics & management
Author, co-author :
Hambuckers, julien ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Statistique appliquée à la gestion et à l'économie
Heuchenne, Cédric ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Statistique appliquée à la gestion et à l'économie
Language :
English
Title :
A new methodological approach for error distributions selection
Publication date :
15 December 2013
Event name :
7th International Conference on Computational and Financial Econometrics and 6th International Conference of the ERCIM WG on Computational and Methodological Statistics
Event organizer :
Computational Statistics and Data Analysis journal, London School of Economics, University of London