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Financial Forecast for the Relative Strength Index

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  • Alfaro, Rodrigo
  • Sagner, Andres

Abstract

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.

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File URL: http://mpra.ub.uni-muenchen.de/25913/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25913.

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Date of creation: Apr 2010
Date of revision: Apr 2010
Handle: RePEc:pra:mprapa:25913

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Keywords: Relative Strength Index; Binomial Model; Financial Forecast;

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  1. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  3. Ana María Abarca G. & Felipe Alarcón G. & Pablo Pincheira B. & Jorge Selaive C., 2007. "Nominal Exchange Rate in Chile: Predictions based on technical analysis," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 10(2), pages 57-80, August.
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