Rights statement: This is the peer reviewed version of the following article: Fan R, Taylor SJ, Sandri M. Density forecast comparisons for stock prices, obtained from high-frequency returns and daily option prices. J Futures Markets. 2018;38:83–103. https://doi.org/10.1002/fut.21859 which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1002fut.21859/abstract This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Density forecast comparisons for stock prices, obtained from high-frequency returns and daily option prices
AU - Fan, Rui
AU - Taylor, Stephen John
AU - Sandri, Matteo
N1 - This is the peer reviewed version of the following article: Fan R, Taylor SJ, Sandri M. Density forecast comparisons for stock prices, obtained from high-frequency returns and daily option prices. J Futures Markets. 2018;38:83–103. https://doi.org/10.1002/fut.21859 which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1002fut.21859/abstract This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
PY - 2018/1
Y1 - 2018/1
N2 - This paper presents the first comparison of the accuracy of density forecasts for stock prices. Six sets of forecasts are evaluated for DJIA stocks, across four forecast horizons. Two forecasts are risk-neutral densities implied by the Black-Scholes and Heston models. The third set are historical lognormal densities with dispersion determined by forecasts of realized variances obtained from 5-minute returns. Three further sets are defined by transforming risk-neutral and historical densities into real-world densities. The most accurate method applies the risk transformation to the Black-Scholes densities. This method outperforms all others for 87% of the comparisons made using the likelihood criterion.
AB - This paper presents the first comparison of the accuracy of density forecasts for stock prices. Six sets of forecasts are evaluated for DJIA stocks, across four forecast horizons. Two forecasts are risk-neutral densities implied by the Black-Scholes and Heston models. The third set are historical lognormal densities with dispersion determined by forecasts of realized variances obtained from 5-minute returns. Three further sets are defined by transforming risk-neutral and historical densities into real-world densities. The most accurate method applies the risk transformation to the Black-Scholes densities. This method outperforms all others for 87% of the comparisons made using the likelihood criterion.
U2 - 10.1002/fut.21859
DO - 10.1002/fut.21859
M3 - Journal article
VL - 38
SP - 83
EP - 103
JO - Journal of Futures Markets
JF - Journal of Futures Markets
SN - 0270-7314
IS - 1
ER -