Adapted Autoregressive Model and Volatility Model with Application

10.6339/JDS.2013.11(4).1165

Nai-Sheng Wang；Yan Lu

Autoregressive model ； MCMC sampling ； price delayed discovery effect ； price limits ； stochastic volatility model

Journal of Data Science

11卷4期（2013 / 10 / 01）

655 - 671

英文

Price limits are applied to control risks in various futures markets. In this research, we proposed an adapted autoregressive model for the observed futures return by introducing dummy variables that represent limit moves. We also proposed a stochastic volatility model with dummy variables. These two models are used to investigate the existence of price delayed discovery effect and volatility spillover effect from price limits. We give an empirical study of the impact of price limits on copper and natural rubble futures in Shanghai Futures Exchange (SHFE) by using MCMC method. It is found that price limits are efficient in controlling copper futures price, but the rubber futures price is distorted significantly. This implies that the effects of price limits are significant for products with large fluctuation and frequent limits hit.

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