Volatility Modelling of Asset Prices using GARCH Models

• Main Author: Näsström, Jens
• Format: Others
• Language: English
• Published: Linköpings universitet, Institutionen för systemteknik 2003
• Subjects: Reglerteknik; GARCH models; risk prediction; system identification and econometrics; Automatic control
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:liu:diva-1625

The objective for this master thesis is to investigate the possibility to predict the risk of stocks in financial markets. The data used for model estimation has been gathered from different branches and different European countries. The four data series that are used in the estimation are price series from: Münchner Rück, Suez-Lyonnaise des Eaux, Volkswagen and OMX, a Swedish stock index. The risk prediction is done with univariate GARCH models. GARCH models are estimated and validated for these four data series. Conclusions are drawn regarding different GARCH models, their numbers of lags and distributions. The model that performs best, out-of-sample, is the APARCH model but the standard GARCH is also a good choice. The use of non-normal distributions is not clearly supported. The result from this master thesis could be used in option pricing, hedging strategies and portfolio selection.