Alfaro, Rodrigo and Sagner, Andres (2010): Financial Forecast for the Relative Strength Index.
Download (218kB) | Preview
In this paper we provide a closed-form expression for one of the most popular index in Technical Analysis: the Relative Strength Index (RSI). Given that we show how the standard binomial model for the stock price can be used to predict RSI. The algorithm is as simple as to code a standard European option. In an empirical application to the Chilean exchange rate we show how the method works having a better out of sample performance than an ARMA(1,1) model.
|Item Type:||MPRA Paper|
|Original Title:||Financial Forecast for the Relative Strength Index|
|English Title:||Financial Forecast for the Relative Strength Index|
|Keywords:||Relative Strength Index, Binomial Model, Financial Forecast|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
|Depositing User:||Rodrigo Alfaro|
|Date Deposited:||16. Oct 2010 11:29|
|Last Modified:||31. Dec 2015 00:51|
Abarca, A., F. Alarcon, Pincheira, P. and J. Selaive (2007) "Nominal Exchange Rate in Chile: Predictions Based on Technical Analysis," Journal Economia Chilena, Banco Central de Chile, 10(2): 57-80.
Black, F., and M., Scholes (1973) "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, 81:637-659.
Cox, J., S. Ross, and M., Rubinstein (1979) "Option Pricing: A Simplied Approach," Journal of Financial Economics, 7:229-264.
Diebold, F., and X. Mariano (1995) "Comparing Predictive Accuracy." Journal of Business & Economic Statistics, 13(3): 503-508.
Ullah, A. (2004) Finite Sample Econometrics New York: Oxford University Press.
van der Hoek, J., and R. Elliot (2000) Binomial Models in Finance. Springer.
Wilder, J. (1978) New Concepts in Technical Trading Systems. Trend Research. Wilmott, P. (2007) Paul Wilmott introduces Quantitative Finance, second edition. John Wiley & Sons, Ltd.