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A Maximum Likelihood Approach to Variance Estimation for a Brownian Motion Using the High, Low and Close
 

Summary: A Maximum Likelihood Approach to Variance Estimation for a
Brownian Motion Using the High, Low and Close
Malik Magdon-Ismail
CS department, Lally 207,
RPI, 110 8th Street,
Troy, NY 12180.
magdon@rpi.edu
Amir F. Atiya
Learning Systems Group,
MC 136-93, Caltech,
Pasadena, CA 91125
amir@work.caltech.edu
October 31, 2000
Abstract
Volatility is time-varying by nature, hence, only the most recent data should be used to estimate
volatility. It is therefore crucial to make utmost use of the scant information typically available in
shorter time windows. We propose a volatility estimator using the high and the low information
in addition to the close price, all of which are typically available to investors. The proposed
estimator is based on a maximum likelihood approach. We present simulations that indicate
that our estimator obtains consistently better performance than existing estimators on simulated

  

Source: Abu-Mostafa, Yaser S. - Department of Mechanical Engineering & Computer Science Department, California Institute of Technology

 

Collections: Computer Technologies and Information Sciences