ROBUST SECURITY VOLATILITY ESTIMATION USING INTRADAY TRANSACTION DATA

摘要

A security price volatility estimator that is capable of accurately estimating price volatility in real-time or near real-time, and in low noise and high noise environments. Embodiments cover an interactive tool that allows or instructs a user to make meaningful decisions based on the estimated volatility. The estimator is constructed based on the assumption that the transaction price of a security comprises the sum of (1) a latent efficient security price that follows a general Ito{circumflex over ( )} semimartingale, and (2) a market microstructure noise component that follows a discrete-time moving-average (MA)(∞) process associated with the random execution of trades. The estimator is obtained by using a tractable Quasi-Maximum Likelihood Estimator (QMLE), which relies on a simple yet mis-specified moving-average MA(q+1) model for observed returns. The order of q is preferably selected based on Akaike Information Criteria (AIC) or Bayesian Information Criteria (BIC).