Range Volatility: A Review of Models and Empirical Studiues

Handbook of Financial Econometrics and Statistics, Forthcoming

Posted: 30 Oct 2012

See all articles by Ray Y. Chou

Ray Y. Chou

Academia Sinica

Heng-Chih Chou

National Taiwan Ocean University

Nathan Liu

Institute of Finance, National Chiao Tung University

Date Written: October 29, 2012

Abstract

The literature on range volatility modeling has been rapidly expanding due to its importance and applications. This paper provides alternative price range estimators and discusses their empirical properties and limitations. Besides, we review some relevant financial applications for range volatility, such as value-at-risk estimation, hedge, spillover effect, portfolio management, and microstructure issues. In this paper, we survey the significant development of range-based volatility models, beginning with the simple random walk model up to the conditional autoregressive range (CARR) model. For the extension to range-based multivariate volatilities, some approaches developed recently are adopted, such as the dynamic conditional correlation (DCC) model, the double smooth transition conditional correlation (DSTCC) GARCH model, and the copula method. At last, we introduce different approaches to build bias-adjusted realized range to obtain a more efficient estimator.

Keywords: Range, Volatility forecasting, Dynamic conditional correlation, Smooth transition, Copula, Realized volatility, Risk management.

JEL Classification: C14, C22, C32

Suggested Citation

Chou, Ray Y. and Chou, Heng-Chih and Liu, Nathan, Range Volatility: A Review of Models and Empirical Studiues (October 29, 2012). Handbook of Financial Econometrics and Statistics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2168528

Ray Y. Chou

Academia Sinica ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

Heng-Chih Chou (Contact Author)

National Taiwan Ocean University ( email )

2 Bei-Ning Road
Keelung, Taiwan 20224
Taiwan

Nathan Liu

Institute of Finance, National Chiao Tung University ( email )

1001 University Road
East District
Hsinchu, 300
Taiwan

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