Multivariate Density Forecast Evaluation and Calibration In Financial Risk Management: High-Frequency Returns on Foreign Exchange

Francis X. Diebold; Jinyong Hahn; Anthony S. Tay

doi:10.1162/003465399558526

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Multivariate Density Forecast Evaluation and Calibration In Financial Risk Management: High-Frequency Returns on Foreign Exchange

Francis X. Diebold¹; Jinyong Hahn²; Anthony S. Tay³

¹ University of Pennsylvania · ² University of Michigan–Ann Arbor · ³ National University of Singapore

The Review of Economics and Statistics 1999 open access

We provide a framework for evaluating and improving multivariate density forecasts. Among other things, the multivariate framework lets us evaluate the adequacy of density forecasts involving cross-variable interactions, such as time-varying conditional correlations. We also provide conditions under which a technique of density forecast “calibration” can be used to improve deficient density forecasts, and we show how the calibration method can be used to generate good density forecasts from econometric models, even when the conditional density is unknown. Finally, motivated by recent advances in financial risk management, we provide a detailed application to multivariate high-frequency exchange rate density forecasts.

DOI: 10.1162/003465399558526
Volume: 81 (4)
Pages: 661-673
Language: en
Export: BibTeX
Sources: openalex crossref