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A censored-GARCH model of asset returns with price limits

Author

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  • WEI, Steven X.

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium and Department of Finance, The Hong Kong University of Science and Technology)

Abstract

As one important form of market circuit breakers, price limits have been often imposed in stock and futures markets. This paper considers modeling the return process of such assets, focusing on the treatment of price limits. As a result, a censored-GARCH model is formulated and a Bayesian approach to this model is developed. An application is provided to Treasury bill futures over a period of high volatility and frequent limit moves. The impacts of price limits are demonstrated with the real data and confirmed with a simulation example

Suggested Citation

  • WEI, Steven X., 1998. "A censored-GARCH model of asset returns with price limits," LIDAM Discussion Papers CORE 1998015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1998015
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1998.html
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    Citations

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    Cited by:

    1. Font, Begoña, 1998. "Modelización de series temporales financieras. Una recopilación," DES - Documentos de Trabajo. Estadística y Econometría. DS 3664, Universidad Carlos III de Madrid. Departamento de Estadística.
    2. Ewa Majerowska, "undated". "Validity of the optimal portfolio allocation model with price constraints on the example of the Warsaw Stock Exchange," Discussion Papers in European Economics 99/5, Division of Economics, School of Business, University of Leicester.
    3. Chu-Hsiung Lin & Chang-Cheng Chang Chien & Sunwu Winfred Chen, 2006. "Incorporating the Time-Varying Tail-Fatness into the Historical Simulation Method for Portfolio Value-at-Risk," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 257-274.

    More about this item

    Keywords

    Price limits; censored-GARCH model; griddy Gibbs sampler-data augmentation.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G19 - Financial Economics - - General Financial Markets - - - Other

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