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Risks 2017, 5(3), 45; doi:10.3390/risks5030045

A Low Price Correction for Improved Volatility Estimation and Forecasting

Department of Mathematics, University of the Aegean, GR-83200 Karlovasi, Samos, Greece
Current address: Division of Statistics and Actuarial-Financial Mathematics, Department of Mathematics, University of the Aegean, GR-83200 Karlovasi, Samos, Greece
These authors contributed equally to this work.
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Received: 9 July 2017 / Revised: 21 August 2017 / Accepted: 22 August 2017 / Published: 28 August 2017
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Abstract

In this work, we focus on volatility estimation which plays a crucial role in risk analysis and management. In order to improve value at risk (VaR) forecasts, we discuss the concept of low price effect and introduce the low price correction which does not require any additional parameters and instead of returns it takes into account the prices of the asset. Judgement on the forecasting quality of the proposed methodology is based on both the relative number of violations and VaR volatility. For illustrative purposes, a real example from the Athens Stock Exchange is fully explored. View Full-Text
Keywords: MA; EWMA; ARCH; GARCH; APARCH; FIGARCH; VaR; violation ratios; leverage effect; low price effect; backtesting MA; EWMA; ARCH; GARCH; APARCH; FIGARCH; VaR; violation ratios; leverage effect; low price effect; backtesting
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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MDPI and ACS Style

Siouris, G.-J.; Karagrigoriou, A. A Low Price Correction for Improved Volatility Estimation and Forecasting. Risks 2017, 5, 45.

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