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Publication - Dr Evarist Stoja

    Efficient Evaluation of Multidimensional Time-Varying Density Forecasts with Applications to Risk Management

    Citation

    Stoja, E & Polanski, A, 2012, ‘Efficient Evaluation of Multidimensional Time-Varying Density Forecasts with Applications to Risk Management’. International Journal of Forecasting.

    Abstract

    We propose two simple evaluation methods for time-varying density forecasts of continuous higher-dimensional random
    variables. Both methods are based on the probability integral transformation for unidimensional forecasts. The first method tests
    multinormal densities and relies on the rotation of the coordinate system. The advantages of the second method are not only
    its applicability to arbitrary continuous distributions, but also the evaluation of the forecast accuracy in specific regions of its
    domain, as defined by the user’s interest.We show that the latter property is particularly useful for evaluating a multidimensional
    generalization of the Value at Risk. In both simulations and an empirical study, we examine the performances of the two tests.

    Full details in the University publications repository