Correcting the errors: volatility forecast evaluation using high-frequency data and realized volatilities. (English) Zbl 1152.91720

Summary: We develop general model-free adjustment procedures for the calculation of unbiased volatility loss functions based on practically feasible realized volatility benchmarks. The procedures, which exploit recent nonparametric asymptotic distributional results, are both easy-to-implement and highly accurate in empirically realistic situations. We also illustrate that properly accounting for the measurement errors in the volatility forecast evaluations reported in the existing literature can result in markedly higher estimates for the true degree of return volatility predictability.


91B84 Economic time series analysis
62P05 Applications of statistics to actuarial sciences and financial mathematics
60H10 Stochastic ordinary differential equations (aspects of stochastic analysis)
60H30 Applications of stochastic analysis (to PDEs, etc.)
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