Most Efficient Homogeneous Volatility Estimators
CCSS Working Paper Series No. CCSS-09-007
20 Pages Posted: 27 Apr 2010
Date Written: October 25, 2009
We present a new theory of homogeneous volatility (and variance) estimators for arbitrary stochastic processes. The main tool of our theory is the parsimonious encoding of all the information contained in the OHLC prices for a given time interval by the joint distributions of the high-minusopen, low-minus-open and close-minus-open values, whose analytical expression is derived exactly for Wiener processes with drift. The efficiency of the new proposed estimators is favorably compared with that of the Garman-Klass, Roger-Satchell and maximum likelihood estimators.
Keywords: Variance and volatility estimators, efficiency, homogeneous functions, Schwarz inequality, extremes of Wiener processes
JEL Classification: C13, C51
Suggested Citation: Suggested Citation