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Non-parametric news impact curve: a variational approach

Author

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  • Matthieu Garcin

    (Natixis Asset Management - SAMS, LABEX Refi - ESCP Europe - Ecole Supérieure de Commerce de Paris)

  • Clément Goulet

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, LABEX Refi - ESCP Europe - Ecole Supérieure de Commerce de Paris)

Abstract

In this paper, we propose an innovative methodology for modelling the news impact curve. The news impact curve provides a non-linear relation between past returns and current volatility and thus enables to forecast volatility. Our news impact curve is the solution of a dynamic optimization problem based on variational calculus. Consequently, it is a non-parametric and smooth curve. To our knowledge, this is the first time that such a method is used for volatility modelling. Applications on simulated heteroskedastic processes as well as on financial data show a better accuracy in estimation and forecast for this approach than for standard parametric (symmetric or asymmetric ARCH) or non-parametric (Kernel-ARCH) econometric techniques.

Suggested Citation

  • Matthieu Garcin & Clément Goulet, 2017. "Non-parametric news impact curve: a variational approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01244292, HAL.
    • Handle: RePEc:hal:cesptp:halshs-01244292
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01244292v3
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    References listed on IDEAS

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    Cited by:

    1. Matthieu Garcin, 2019. "Fractal analysis of the multifractality of foreign exchange rates [Analyse fractale de la multifractalité des taux de change]," Working Papers hal-02283915, HAL.

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    Keywords

    news impact curve; calculus of variations; wavelet theory; ARCH; Volatility modeling;
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