Iterative method for exponentially weighted rolling regression

Abstract

This note proposes an iterative method for exponentially weighted rolling regression (EWRR), which was proved to be an optimal estimator of volatility by Foster and Nelson [Econometrica 64 (1996)]. The method accelerates the numerical evaluation of EWRR under certain circumstances. An alternative to usual realized volatility is proposed for its application.  2004 Elsevier Inc. All rights reserved.