IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v16y2013i05ns021902491350026x.html
   My bibliography  Save this article

An Application Of The Method Of Moments To Range-Based Volatility Estimation Using Daily High, Low, Opening, And Closing (Hloc) Prices

Author

Listed:
  • CRISTIN BUESCU

    (Department of Mathematics, King's College London, London, WC2R 2LS, UK)

  • MICHAEL TAKSAR

    (Mathematics Department, University of Missouri, Columbia, MO 65211, USA)

  • FATOUMATA J. KONÉ

    (Citibank, London, E14 5LB, UK)

Abstract

We use the expectation of the range of an arithmetic Brownian motion and the method of moments on the daily high, low, opening, and closing prices to estimate the volatility of the stock price. This novel theoretical approach results in an estimator that is genuinely range-based on daily opening, high, low and closing data, unlike current estimators in the literature. The daily price jump at the opening is considered to be the result of the unobserved evolution of an after-hours virtual trading day. In comparison to an existing drift-independent estimator, we find that our estimator is actually more efficient when using a smaller number of data points, while for a larger number of points the efficiency of our estimator stays above 99% of the existing one. A toy example that uses this method to take advantage of mispricing opportunities in the options market illustrates potential applications of this method to algorithmic trading.

Suggested Citation

  • Cristin Buescu & Michael Taksar & Fatoumata J. Koné, 2013. "An Application Of The Method Of Moments To Range-Based Volatility Estimation Using Daily High, Low, Opening, And Closing (Hloc) Prices," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(05), pages 1-24.
    • Handle: RePEc:wsi:ijtafx:v:16:y:2013:i:05:n:s021902491350026x
    DOI: 10.1142/S021902491350026X
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S021902491350026X
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S021902491350026X?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:16:y:2013:i:05:n:s021902491350026x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.