Adapted Autoregressive Model and Volatility Model with Application

Price limits are applied to control risks in various futures mar- kets. 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 de- layed discovery eect and volatility spillover eect 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 ecient in controlling copper futures price, but the rubber futures price is distorted signicantly. This implies that the eects of price limits are signicant for products with large uctuation and frequent limits hit.