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An application of the method of moments to volatility estimation using daily high, low, opening and closing prices


  • Cristin Buescu
  • Michael Taksar
  • Fatoumata J. Kon'e


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. The daily price jump at the opening is considered to be the result of the unobserved evolution of an after-hours virtual trading day.The annualized volatility is used to calculate Black-Scholes prices for European options, and a trading strategy is devised to profit when these prices differ flagrantly from the market prices.

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  • Cristin Buescu & Michael Taksar & Fatoumata J. Kon'e, 2011. "An application of the method of moments to volatility estimation using daily high, low, opening and closing prices," Papers 1112.4534,
  • Handle: RePEc:arx:papers:1112.4534

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    References listed on IDEAS

    1. Christian Bender, 2011. "Dual pricing of multi-exercise options under volume constraints," Finance and Stochastics, Springer, vol. 15(1), pages 1-26, January.
    2. repec:spr:compst:v:71:y:2010:i:3:p:503-533 is not listed on IDEAS
    3. Denis Belomestny & Anastasia Kolodko & John Schoenmakers, 2009. "Regression methods for stochastic control problems and their convergence analysis," SFB 649 Discussion Papers SFB649DP2009-026, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Philip Protter & Emmanuelle Clément & Damien Lamberton, 2002. "An analysis of a least squares regression method for American option pricing," Finance and Stochastics, Springer, vol. 6(4), pages 449-471.
    5. L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 271-286.
    6. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
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