Circuit Breakers

Discuss Mathematical Finance: Theory, Modeling, Implementation by Christian Fries. The author has kindly agreed to participate.

Circuit Breakers

Postby BenTheMan » Mon Jun 21, 2010 4:54 pm

After the ``flash crash'' in the NYSE six weeks ago, the stock exchanges seem to have settled on implementing ``circuit breakers'' for the stock price, which kick in if volatility gets too big. From what I understand, the circuit breakers kick in if a stock's price moves more than 10% (depending on the spot price, I think) at a time. Trades at > +/- 10% of the spot price will be canceled and trading in the stock will be suspended. Is this about right?

The question is, what does this mean for modellers? One thought is that jumps become much easier to model, because the stock exchanges have effectively dictated the largest possible jumps. And the new regulations also cap volatility. Does this make small cap stocks less attractive?

Also, are there similar regulations in other markets around the world?
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