What are the steps of forecasting realised volatility of swap rates using EViews?

For technical questions regarding estimation of single equations, systems, VARs, Factor analysis and State Space Models in EViews. General econometric questions and advice should go in the Econometric Discussions forum.

Moderators: EViews Gareth, EViews Moderator

DavidG93
Posts: 3
Joined: Sat Aug 18, 2018 8:59 am

What are the steps of forecasting realised volatility of swap rates using EViews?

Postby DavidG93 » Sat Aug 18, 2018 1:02 pm

One part of my dissertation involves forecasting the realised volatilities of interest rates. I know that I have to first model the realised variance as a garch process.

So, what I have done so far is, I got the swap rates from 2000-2006. Then, I calculated the logarithmic daily changes of them. Afterwards, I estimated a GARCH 1,1 process (although I am not sure if that was done right).

Then, my next forecast equation (in theory) is rt+h = c0 = c1*rt-1+h + e
rt = logarithmic daily changes
h= forecast period

How do I now forecast the realised variance for the next 10 years e.g.?
Since I am not the best at using EViews, I would appreciate any help/hints/assistance!

pvestia
Posts: 14
Joined: Wed Apr 18, 2018 4:35 am

Re: What are the steps of forecasting realised volatility of swap rates using EViews?

Postby pvestia » Sat Aug 18, 2018 1:24 pm

can you post the workfile?
Is easier to see what you need to do and understand what are you doing.

DavidG93
Posts: 3
Joined: Sat Aug 18, 2018 8:59 am

Re: What are the steps of forecasting realised volatility of swap rates using EViews?

Postby DavidG93 » Mon Aug 20, 2018 8:07 am

Sure, Sorry I didn't do that earlier!
Attachments
ForecastSwaps.wf1
(96.57 KiB) Downloaded 237 times

pvestia
Posts: 14
Joined: Wed Apr 18, 2018 4:35 am

Re: What are the steps of forecasting realised volatility of swap rates using EViews?

Postby pvestia » Mon Aug 20, 2018 9:04 am

Hello David,

After checking the correlogram of rt it seems to follow an ARMA(1,1) which you have to estimate the "rt c ar(1) ma(1)".
After that you need to conduct the Heteroskedasticity Test, which confirms the ARCH effects. so You need to estimate the ARMA(1,1)-GARCH(1,1).
After that to perorm the out-sample forecast, You need to rearrange you range size and than perform the forecast with the method you want and for the sample you want.
I will attache the screenshot explaining and the workfile.
Attachments
david.jpg
david.jpg (153.83 KiB) Viewed 4990 times
forecastswaps.wf1
(104.81 KiB) Downloaded 235 times

DavidG93
Posts: 3
Joined: Sat Aug 18, 2018 8:59 am

Re: What are the steps of forecasting realised volatility of swap rates using EViews?

Postby DavidG93 » Mon Aug 20, 2018 10:09 am

Hi pvestia,

Thank you for your quick answer!
I adjusted the range size, however, when I do the dynamic forecast, there is only a straight line from 2006 onward. Any idea why?
If I'm right, I can't use the static forecasting, since I don't have the actual values, correct?

forecast.JPG
forecast.JPG (140.66 KiB) Viewed 4984 times

pvestia
Posts: 14
Joined: Wed Apr 18, 2018 4:35 am

Re: What are the steps of forecasting realised volatility of swap rates using EViews?

Postby pvestia » Mon Aug 20, 2018 2:23 pm

Hello, Yes with the static forecast you are only abble to forecast One-period because you only have an auto-regressive lag. The result of the dynamic forecast in Eviews I don't understand them quite well. They should converge to zero, but is kind of odd being straight line, I don't know is suppose to be like that.

One thing you can do, I'm trying something similar, is to perform multiples static forecasts in a loop. I don't know with this procedure I'm proposing you doesn't generate regressor bias, but you can give it a try.

I will give you a code, I didn't resize the data in my workfile because is irregular and I don't know the dates you want. To use the code you just go to Files\New\Program and then copy and run it.

Code: Select all

' number of obseration you added to the range  for your forecast
' based on you screen shot the number is 5211-2600=2611
!x = 2611

'THE LOOP STARTS

'define loop for the forecast
for !i=1 to !x

'make the ARMA-GARCH
smpl @first @first+2598+!i
equation arma_garch.arch(1,1) rt c ar(1) ma(1)

'perform the static forecast
arma_garch.makemodel(mod1)
smpl @first+2599+!i  @first+2599+!i
mod1.solve(d=s)
smpl @all
series rt = rt_0

'delete the auxiliar
delete rt_0

next


After you done this, you estimate again the ARMA(1,1)-GARCH(1,1) and do a static forecast for the all range and see what you got.


Return to “Estimation”

Who is online

Users browsing this forum: No registered users and 16 guests