multi-asset

Do volatility forecasts benefit from range-based measures?

Do volatility forecasts benefit from range-based measures?
François Chareyron - Portfolio Manager

François Chareyron

Portfolio Manager
Julien Royer, PhD - Quantitative Analyst, Multi Asset

Julien Royer, PhD

Quantitative Analyst, Multi Asset
Gabriele Grignani - Quantitative Analyst Intern

Gabriele Grignani

Quantitative Analyst Intern

MARS, our Multi-Asset Research Series, focuses on complex topics in the realm of multi asset to bring quantitative investment research back to Earth. In this second issue, we continue to explore range-based volatility measures and consider their advantages to improve volatility forecasts versus other estimators.

 

Key areas covered include:

  • Risk-based portfolio construction is directly linked to the ability to build forecasts of volatility and translate them into investment rules. Are range-based measures useful in generating more accurate volatility forecasts?
  • We begin by looking at how to incorporate range-based measures into standard volatility models to generate forecasts, considering different approaches and specifications
  • Choosing the scoring function to compute the loss series of the forecasts is key when the true process is unobservable. This notably enables the comparison of different volatility models, highlighting the additional information carried by intraday data when forecasting daily volatility
  • Since most portfolio constructions require forecasting farther than one day ahead, we explore how range-based exogenous variables can help build more accurate forecasts for longer horizons
  • Concluding that range-based volatility measures provide a significant edge to forecasting, we acknowledge that assessing the extent of that edge is more complex. Further areas of research will address the economic value of enhanced volatility forecasts in the context of risk-based portfolios

 

For more, please read the second issue of MARS.

Important information

FOR PROFESSIONAL INVESTOR USE ONLY.

This document is issued by Silvercrest, authorised and regulated by the Financial Conduct Authority (the “FCA”). Silvercrest Investment Managers is a trade name.

This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of Silvercrest and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of Silvercrest . This material contains the opinions of Silvercrest, as at the date of issue. Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term “United States Person” shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income. Source of the figures: Unless otherwise stated, figures are prepared by Silvercrest . Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Silvercrest to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice. No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Silvercrest prior consent. In the United Kingdom, this material is a marketing material and has been approved by Silvercrest which is authorized and regulated by the FCA. ©2023 Silvercrest IM. All rights reserved.