Re: [R] [R-SIG-Finance] EMM: how to make forecast using EMM methods?

From: elton wang <>
Date: Thu, 28 Feb 2008 13:35:31 -0800 (PST)

I've heard opinions that GARCH/SV volatility models are not better on forecasting than simple exponential moving average volatilities or even rolling window historical vol.
Any practitioners mind comment?

> Hi all,
> We followed some books and sample codes and did some
> EMM estimation,
> only to find it won't be able to generate forecast.
> This is because in the stochastic volatility models
> we are estimating,
> the volatilities are latent variables, and we want
> to forecast 1-step
> ahead or h-step ahead volatilities.
> So it is nice to have the system estimated, but we
> couldn't get it to
> forecast at all.
> There is a "Reprojection" Method described in the
> original EMM paper,
> but let's say we reproject to a GARCH(1,1) model,
> then only the
> GARCH(1, 1) parameters are significant, which
> basically means we
> degrade the SV model into a GARCH model. There is no
> way to do the
> forecast...
> Could anybody give some pointers?
> Thanks!
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