Estimating Variance From High, Low and Closing Prices
Rogers, L. C. G. ; Satchell, S. E.
Ann. Appl. Probab., Tome 1 (1991) no. 4, p. 504-512 / Harvested from Project Euclid
The log of the price of a share is commonly modelled as a Brownian motion with drift, $\sigma B_t + ct$, where the constants $c$ and $\sigma$ are unknown. In order to use the Black-Scholes option pricing formula, one needs an estimate of $\sigma$, though not of $c$. In this paper, we propose a new estimator of $\sigma$ based on the high, low, and closing prices in a day's trading. This estimator has the merit of being unbiased whatever the drift $c$. In common with other estimators of $\sigma$, the approximation of the true high and low values of the drifting Brownian motion by the high and low values of a random walk introduces error, often quite a serious error. We shall show how a simple correction can overcome this error almost completely.
Publié le : 1991-11-14
Classification:  Black-Scholes formula,  option pricing,  Brownian motion,  Wiener-Hopf factorisation,  62M05,  62P20,  90A12,  60J60,  60J65
@article{1177005835,
     author = {Rogers, L. C. G. and Satchell, S. E.},
     title = {Estimating Variance From High, Low and Closing Prices},
     journal = {Ann. Appl. Probab.},
     volume = {1},
     number = {4},
     year = {1991},
     pages = { 504-512},
     language = {en},
     url = {http://dml.mathdoc.fr/item/1177005835}
}
Rogers, L. C. G.; Satchell, S. E. Estimating Variance From High, Low and Closing Prices. Ann. Appl. Probab., Tome 1 (1991) no. 4, pp.  504-512. http://gdmltest.u-ga.fr/item/1177005835/