Volatility Forecasting and Asset Allocation in Portfolio Management.
Volatility is a fundamental concept in finance and refers to the conditional standard deviation of asset returns. Volatility has applications in virtually all areas of finance as it represents an important measure of risk.
First, I will examine the forecasting power across a large number of univariate and multivariate volatility models. I will obtain volatility estimates using various frameworks and I will also combine the forecasts and explore the extent to which such combinations can improve the forecasting accuracy over future volatility.
The second part of my research will shift the emphasis to the choice between volatility forecasts derived from historical models against option implied volatility measures. Finally, the third part of my research will move to how we can optimize asset allocation in a portfolio through the use of multivariate volatility models. I will focus on extending the literature on shrinkage methods.