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

Michael comtech.usa at gmail.com
Thu Feb 28 21:55:35 CET 2008


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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