Boosting-Based Frameworks in Financial Modeling: Application to Symbolic Volatility Forecasting

Abstract

Increasing availability of the financial data has opened new opportunities for quantitative modeling. It has also exposed limitations of the existing frameworks, such as low accuracy of the simplified analytical models and insufficient interpretability and stability of the adaptive data-driven algorithms. I make the case that boosting (a novel, ensemble learning technique) can serve as a simple and robust framework for combining the best features of the analytical and data-driven models. Boosting-based frameworks for typical financial and econometric applications are outlined. The implementation of a standard boosting procedure is illustrated in the context of the problem of symbolic volatility forecasting for IBM stock time series. It is shown that the boosted collection of the generalized autoregressive conditional heteroskedastic (GARCH)-type models is systematically more accurate than both the best single model in the collection and the widely used GARCH(1,1) model.

Citation

Gavrishchaka, V.V. (2006), "Boosting-Based Frameworks in Financial Modeling: Application to Symbolic Volatility Forecasting", Fomby, T.B. and Terrell, D. (Ed.) Econometric Analysis of Financial and Economic Time Series (Advances in Econometrics, Vol. 20 Part 2), Emerald Group Publishing Limited, Leeds, pp. 123-151. https://doi.org/10.1016/S0731-9053(05)20024-5