Financial Forecast for the Relative Strength Index
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.
|Date of creation:||Apr 2010|
|Date of revision:||Apr 2010|
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- Diebold, Francis X & Mariano, Roberto S, 1995.
"Comparing Predictive Accuracy,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 13(3), pages 253-63, July.
- Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
- Tom Doan, . "DMARIANO: RATS procedure to compute Diebold-Mariano Forecast Comparison Test," Statistical Software Components RTS00055, Boston College Department of Economics.
- 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.
- 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.
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