Publication detail

Volatility extraction using the Kalman filter

Author(s):
Type: IES Working Papers
Year: 2008
Number: 10
ISSN / ISBN:
Published in: IES Working Papers 10/2008
Publishing place: Prague
Keywords: volatility, stochastic volatility models, Kalman filter, volatility proxy
JEL codes: C22,G15
Suggested Citation: Kuchynka, A. (2008). “ Volatility extraction using the Kalman filter ” IES Working Paper 10/2008. IES FSV. Charles University.
Abstract: This paper focuses on the extraction of volatility of financial returns. The volatility process is modeled as a superposition of two autoregressive processes which represent the more persistent factor and the quickly mean-reverting factor. As the volatility is not observable, the logarithm of the daily high-low range is employed as its proxy. The estimation of parameters and volatility extraction are performed using a modified version of the Kalman filter which takes into account the finite sample distribution of the proxy.
Downloadable: WP 2008_10_Kuchynka

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