Institute of Information Theory and Automation

Publication details

Modeling and forecasting exchange rate volatility in time-frequency domain

Journal Article

Baruník Jozef, Křehlík Tomáš, Vácha Lukáš

serial: European Journal of Operational Research vol.251, 1 (2016), p. 329-340

project(s): GA13-32263S, GA ČR, 612955,

keywords: Realized GARCH, Wavelet decomposition, Jumps, Multi-period-ahead volatility forecasting

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abstract (eng):

This paper proposes an enhanced approach to modeling and forecasting volatility using high frequency data. Using a forecasting model based on Realized GARCH with multiple time-frequency decomposed realized volatility measures, we study the influence of different timescales on volatility forecasts. The decomposition of volatility into several timescales approximates the behaviour of traders at corresponding investment horizons. The proposed methodology is moreover able to account for impact of jumps due to a recently proposed jump wavelet two scale realized volatility estimator. We propose a realized Jump-GARCH models estimated in two versions using maximum likelihood as well as observation-driven estimation framework of general- ized autoregressive score. We compare forecasts using several popular realized volatility measures on foreign exchange rate futures data covering the recent financial crisis.


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Institute of Information Theory and Automation