1
$\begingroup$

Assume we have minute-bars of OHLC stock prices. Then, applying Kalman filter to those prices separately, we can remove a measurement noise and obtain the estimates of the states of the price processes.

The observations is: after Kalman filtering, some high prices become smaller than low prices. Can it cause some problems?

In my opinion, it is not a problem. In a feature creation after filtering, it it happens that $High < Low$ then I would just flip them.

$\endgroup$
  • 1
    $\begingroup$ You haven't explained the purpose of the Kalman filter. $\endgroup$ – Brian O'Donnell Dec 20 '19 at 14:49
  • $\begingroup$ It is more common to use the closing price. This will avoid the problem you are seeing. $\endgroup$ – Brian O'Donnell Dec 20 '19 at 15:27
  • $\begingroup$ I would like to use all prices in the bar $\endgroup$ – ABK Dec 20 '19 at 15:28
2
$\begingroup$

how about preprocessing the data and create mid_price = (H+L)/2 and range = H-L. And your Kalman filter apply to mid_price and range. Then you will not have the problem as you described

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.