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Stochastic conditonal range, a latent variable model for financial volatility

Galli, Fausto (2014): Stochastic conditonal range, a latent variable model for financial volatility.

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Abstract

In this paper I introduce a latent variable augmented version of the conditional autoregressive range (CARR) model. The new model, called stochastic conditional- range (SCR) can be estimated by Kalman filter or by efficient importance sampling depending on the hypotheses on the distributional form of the innovations. A predic- tive accuracy comparison with the CARR model shows that the new approach can provide an interesting alternative.

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