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One-Day Prediction of State of Turbulence for Portfolio. Models for Binary Dependent Variable

Author

Listed:
  • Marcin Chlebus

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

This paper proposes an approach to predict states (states of tranquillity and turbulence) for a current portfolio in a one-day horizon. The prediction is made using 3 different models for a binary variable (LOGIT, PROBIT, CLOGLOG), 4 definitions of a dependent variable (1%, 5%, 10%, 20% of worst realization of returns), 3 sets of independent variables (untransformed data, PCA analysis and factor analysis). Additionally an optimal cut-off point analysis is performed. The evaluation of the models was based on the LR test, Hosmer-Lemeshow test, GINI coefficient analysis and KROC criterion based on the ROC curve. Six combinations of assumptions have been chosen as appropriate (any model for a binary variable, the dependent variable defined as 5% or 10% of worst realization of returns, untransformed data, 5% or 10% cut-off point respectively). Models built on these assumptions meet all the formal requirements and have a high predictive and discriminant ability.

Suggested Citation

  • Marcin Chlebus, 2016. "One-Day Prediction of State of Turbulence for Portfolio. Models for Binary Dependent Variable," Working Papers 2016-01, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2016-01
    as

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    File URL: http://www.wne.uw.edu.pl/index.php/download_file/2295/
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    References listed on IDEAS

    as
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    Cited by:

    1. Chlebus Marcin, 2017. "EWS-GARCH: New Regime Switching Approach to Forecast Value-at-Risk," Central European Economic Journal, Sciendo, vol. 3(50), pages 01-25, December.
    2. Marcin Chlebus, 2016. "Can Lognormal, Weibull or Gamma Distributions Improve the EWS-GARCH Value-at-Risk Forecasts?," FindEcon Chapters: Forecasting Financial Markets and Economic Decision-Making, in: Magdalena Osińska (ed.), Statistical Review, vol. 63, 2016, 3, edition 1, volume 63, chapter 4, pages 329-350, University of Lodz.

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    More about this item

    Keywords

    prediction; state of turbulence; regime switching; risk management; risk measure; market risk;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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