GARCH model backtesting

GARCH Models in Python

Chelsea Yang

Data Science Instructor

Backtesting

  • An approach to evaluate model forecasting capability

  • Compare the model predictions with the actual historical data

GARCH Models in Python

In-sample vs. out-of-sample

  • In-sample: model fitting

  • Out-of-sample: backtesting

GARCH Models in Python

MAE

Mean Absolute Error

MAE equation

GARCH Models in Python

MSE

Mean Squared Error

MSE equation

GARCH Models in Python

Calculate MAE, MSE in Python

from sklearn.metrics import mean_absolute_error, mean_squared_error

# Call function to calculate MAE
mae = mean_absolute_error(observation, forecast)


# Call function to calculate MSE
mse = mean_squared_error(observation, forecast)
GARCH Models in Python

Let's practice!

GARCH Models in Python

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