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Quantifying neural network uncertainty under volatility clustering

Statistical Finance 2024-09-20 v2

Abstract

Time-series with volatility clustering pose a unique challenge to uncertainty quantification (UQ) for returns forecasts. Methods for UQ such as Deep Evidential regression offer a simple way of quantifying return forecast uncertainty without the costs of a full Bayesian treatment. However, the Normal-Inverse-Gamma (NIG) prior adopted by Deep Evidential regression is prone to miscalibration as the NIG prior is assigned to latent mean and variance parameters in a hierarchical structure. Moreover, it also overparameterizes the marginal data distribution. These limitations may affect the accurate delineation of epistemic (model) and aleatoric (data) uncertainties. We propose a Scale Mixture Distribution as a simpler alternative which can provide favorable complexity-accuracy trade-off and assign separate subnetworks to each model parameter. To illustrate the performance of our proposed method, we apply it to two sets of financial time-series exhibiting volatility clustering: cryptocurrencies and U.S. equities and test the performance in some ablation studies.

Keywords

Cite

@article{arxiv.2402.14476,
  title  = {Quantifying neural network uncertainty under volatility clustering},
  author = {Steven Y. K. Wong and Jennifer S. K. Chan and Lamiae Azizi},
  journal= {arXiv preprint arXiv:2402.14476},
  year   = {2024}
}

Comments

44 pages

R2 v1 2026-06-28T14:56:59.181Z