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Forecasting Volatility of Gold Price Using Markov Regime Switching and Trading Strategy
School of Mathematics Suranaree University of Technology, Nakhon Ratchasima, Thailand
School of Mathematics Suranaree University of Technology, Nakhon Ratchasima, Thailand
Institute of Biomedical Engineering, Imperial College South Kensington Campus, Kensington, London
- 1 School of Mathematics Suranaree University of Technology, Nakhon Ratchasima, Thailand
- 2 School of Mathematics Suranaree University of Technology, Nakhon Ratchasima, Thailand
- 3 Institute of Biomedical Engineering, Imperial College South Kensington Campus, Kensington, London
Journal of Mathematical Finance·Volume 02 (2012)·Pages 121–131·Published 28 February 2012·DOI10.4236/jmf.2012.21014
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Abstract
In this paper, we forecast the volatility of gold prices using Markov Regime Switching GARCH (MRS-GARCH) models. These models allow volatility to have different dynamics according to unobserved regime variables. The main purpose of this paper is to find out whether MRS-GARCH models are an improvement on the GARCH type models in terms of modeling and forecasting gold price volatility. The MRS-GARCH is best performance model for gold price volatility in some loss function. Moreover, we forecast closing prices of gold price to trade future contract. MRS-GARCH got the most cumulative return same GJR model.
KeywordsForecastingVolatilityGold PriceMarkov Regime Switching
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