Author(s)

R.W. Chen, B. Rosenberg & Y.T. Lee

Abstract

Security prices are set by a continuous auction, the rules of which are set by the exchange or by the government. For many exchanges, there is a general free-flow of price information resulting in stock prices which can be modelled by a random walk following aWeiner-Levy process. However, many markets have collars, under which the rules of the auction will not let prices move too rapidly. In this paper we present methods for estimating the volatility of the underlying price data when the true price information is obscured by such collars. Numerical simulations are presented which demonstrate and contrast the methods. Keywords: estimation of volatility, market models, market collars. 1 Introduction Security prices are set by a continuous auction. The rules of the auction are set by the exchange or by the government. For many exchanges, ther

Keywords