Markets: A Rigorous Course

M09 · Problem 2 ★★ Check

The fourth moment of the range and Parkinson's efficiency

Starting from Feller's density fR(r)=8∑k≥1(−1)k−1k2φ(kr)f_R(r)=8\sum_{k\ge1}(-1)^{k-1}k^2\varphi(kr) for the range of standard Brownian motion on [0,1][0,1]: (a) Derive E[R4]=9ζ(3)E[R^4]=9\zeta(3), justifying the interchange of sum and integral. (b) Deduce the variance of the per-day Parkinson estimator and its efficiency relative to rt2r_t^2. (c) How many days of Parkinson estimates give the same standard error of σ^2\hat\sigma^2 as 252 days of squared close-to-close returns? What is the relative standard error of σ^\hat\sigma from 20 days of each?

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