FORECASTING CBOE OPENING VALUES: AN EFFECTIVE ARIMA APPROACH WITH TRANSFORMATION AND MODEL DIAGNOSTICS
DOI:
https://doi.org/10.55766/sujst-2024-04-e04932Keywords:
ARIMA forecasting, Model selection, Monte Carlo simulation, Stationarity transformation, Time series analysisAbstract
This study investigates the use of an ARIMA model, coupled with Monte Carlo simulation, to forecast the opening value of a Volatility Index (VIX) time series. The data obtained from the Chicago Board Options Exchange (CBOE) for the years 1992–2019 have been transformed into stationary data using a detrend method and first-order difference. The Augmented Dickey-Fuller (ADF) test is used to ensure the data are adequately transformed. The autocorrelation function (ACF) and partial ACF (PACF) are then used to identify series with serial correlation and determine whether an autoregressive (AR) model is appropriate. Significant moving average (MA) lags are also determined for model identification. The Akaike Information Criterion (AIC) and the Bayesian Information Criterion (BIC) are used to find the best-fit ARIMA model. Among the evaluated ARIMA models, which ranged from a random walk ARIMA(0, 1, 0) to ARIMA(2, 1, 2), the ARIMA(2, 1, 2) model was found to be the most optimal, exhibiting the lowest AIC and BIC values. This model was then used to forecast the opening value for the year 2014, using 2013 data as the real data. The generated ARIMA(2, 1, 2) model demonstrates reasonable alignment with the actual 2014 data, suggesting its potential for forecasting in this context. Additionally, Monte Carlo simulations are employed to assess the model’s robustness by generating a range of potential outcomes, providing a more comprehensive understanding of the uncertainty associated with the forecasts.
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