Intraday forecasts of a volatility index: functional time series methods with dynamic updating
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Publication:2288944
Abstract: As a forward-looking measure of future equity market volatility, the VIX index has gained immense popularity in recent years to become a key measure of risk for market analysts and academics. We consider discrete reported intraday VIX tick values as realisations of a collection of curves observed sequentially on equally spaced and dense grids over time and utilise functional data analysis techniques to produce one-day-ahead forecasts of these curves. The proposed method facilitates the investigation of dynamic changes in the index over very short time intervals as showcased using the 15-second high-frequency VIX index values. With the help of dynamic updating techniques, our point and interval forecasts are shown to enjoy improved accuracy over conventional time series models.
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Cited in
(6)- Forecasting intraday S\&P 500 index returns: a functional time series approach
- Forecasting high-frequency stock returns: a comparison of alternative methods
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