A note of techniques that mitigate floating-point errors in PIN estimation
Journal
Finance Research Letters
Journal Volume
31
Pages
458-464
Date Issued
2019
Author(s)
Abstract
This study aims at the estimation of the probability of informed trading (PIN), which may fail for stocks with high levels of trading activities due to a computer's floating-point exception (FPE). In this paper, we discuss two solutions of adopting scaled trade counts and reformulating the likelihood to estimate PIN for actively traded stocks. This study shows that, although scaled data mitigates the impact of the FPE, the effectiveness of scaled data, however, appears to underperform when users adopt the unsuitable expression of the likelihood function. In contrast, the remedy of reformulating the likelihood is more stable.
Type
journal article