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Robust bootstrap forecast densities for GARCH models: returns, volatilities and value-at-risk

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  • Hotta, Luiz
  • Trucíos, Carlos

Abstract

Bootstrap procedures are useful in GARCH models to obtain forecast densities for returns and volatilities.In this paper, we analyze the effect of outliers on the finite sample properties of these densities when they are based on standard maximum likelihood and robust procedures. We show that when the former procedure is implemented, the bootstrap densities are badly affected by the presence of outliers. However,the robust estimator based on variance targeting with an adequate modification of the volatility filter has the best performance when compared with alternative robust procedures. The results are illustrated withboth simulated and real data

Suggested Citation

  • Hotta, Luiz & Trucíos, Carlos, 2015. "Robust bootstrap forecast densities for GARCH models: returns, volatilities and value-at-risk," DES - Working Papers. Statistics and Econometrics. WS ws1523, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:ws1523
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    Cited by:

    1. Trucíos, Carlos & Hotta, Luiz K. & Valls Pereira, Pedro L., 2019. "On the robustness of the principal volatility components," Journal of Empirical Finance, Elsevier, vol. 52(C), pages 201-219.
    2. Trucíos, Carlos, 2019. "Forecasting Bitcoin risk measures: A robust approach," International Journal of Forecasting, Elsevier, vol. 35(3), pages 836-847.
    3. Trucíos, Carlos & Hotta, Luiz K., 2016. "Bootstrap prediction in univariate volatility models with leverage effect," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 120(C), pages 91-103.

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