TITLE:
Modeling and Forecasting Financial Volatilities Using a Joint Model for Range and Realized Volatility
AUTHORS:
Yunqian Ma, Yuanying Jiang
KEYWORDS:
High-Low Range, Realized Volatility, Joint Model, High Frequency Data
JOURNAL NAME:
Open Journal of Business and Management,
Vol.4 No.2,
April
12,
2016
ABSTRACT: There exist many ways to measure financial asset volatility. In this paper, we introduce a new joint
model for the high-low range of assets prices and realized measure of volatility: Realized CARR. In
fact, the high-low range and realized volatility, both are efficient estimators of volatility. Hence,
this new joint model can be viewed as a model of volatility. The model is similar to the Realized
GARCH model of Hansen et al. (2012), and it can be estimated by the quasi-maximum likelihood
method. Out-of-sample volatility forecasting using Standard and Poors 500 stock index (S&P), Dow
Jones Industrial Average index (DJI) and National Association of Securities Dealers Automated
Quotation (NASDAQ) 100 equity index shows that the Realized CARR model does outperform the
Realized GARCH model.