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arXiv · 1812.00096

Intraday forecasts of a volatility index: Functional time series methods with dynamic updating

Han Lin Shang·Yang Yang·Fearghal Kearney
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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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Han Lin Shang, Yang Yang, Fearghal Kearney. 2018-11-30. Intraday forecasts of a volatility index: Functional time series methods with dynamic updating. https://arxiv.org/abs/1812.00096

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