| Nuno Miguel de Almeida, University of Sao Paulo Luiz K. Hotta, UNICAMP Luiz Alvares Rezende de Souza, University of Sao Paulo Pedro Valls, IBMEC Business School |
| Alternative Models to Extract Asset Volatility: A Comparative Study |
| Session: C-11-20 Tuesday 15 August 2000 by Valls, Pedro |
| This paper presents an empirical comparison in the estimation of the volatility of three Brazilian financial series: a Brazilian Brady bond (the Cbond), the most tradable share in Sao Paulo Stock Exchange (Telebras PN) and the Brazilian Real / US Dollar exchange rate, using different modelling methods. The models used are: XARCH family, Stochastic Volatility (SV) and the switching in the variance model (SWARCH). The comparison is done using three criteria: loss functions, which compare the square of the estimated volatility with the instantaneous volatility, a procedure proposed by Herencia et alii (1998) which used prediction confidence intervals and one-step-ahead prediction, and a prediction exercise for the last 100 observations. In general the SV model presented the best performance although it is dominated by other models in some criteria. |