CNN-based Realized Covariance Matrix Forecasting

• URL: http://arxiv.org/abs/2107.10602v1
• Date: Thu, 22 Jul 2021 12:02:24 GMT
• Title: CNN-based Realized Covariance Matrix Forecasting
• Authors: Yanwen Fang, Philip L. H. Yu, Yaohua Tang
• Abstract summary: We propose an end-to-end trainable model built on the CNN and Conal LSTM (ConvLSTM) It focuses on local structures and correlations and learns a nonlinear mapping that connect the historical realized covariance matrices to the future one. Our empirical studies on synthetic and real-world datasets demonstrate its excellent forecasting ability compared with several advanced volatility models.
• Score: 0.0
• License: http://creativecommons.org/licenses/by/4.0/
• Abstract: It is well known that modeling and forecasting realized covariance matrices of asset returns play a crucial role in the field of finance. The availability of high frequency intraday data enables the modeling of the realized covariance matrices directly. However, most of the models available in the literature depend on strong structural assumptions and they often suffer from the curse of dimensionality. We propose an end-to-end trainable model built on the CNN and Convolutional LSTM (ConvLSTM) which does not require to make any distributional or structural assumption but could handle high-dimensional realized covariance matrices consistently. The proposed model focuses on local structures and spatiotemporal correlations. It learns a nonlinear mapping that connect the historical realized covariance matrices to the future one. Our empirical studies on synthetic and real-world datasets demonstrate its excellent forecasting ability compared with several advanced volatility models.

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