I want to know which volatility estimator should I use for the following scenario:
I am implementing a market making bot and therefore I need to make estimations of the volatility of the price in the fashion of asking: What was the volatility of the price in the last couple of Minutes? (5-30 Minutes)
The data I've got available for the estimation is a set of all the prices in that time period at an interval of about 2-5 seconds, which are about 500 data point. And every time a new data point is added to the set, all data points that are older than the period of interest (5-30 Minutes) are removed from it.
Right now I use a basic estimator that calculates the variance of all the prices, however the problem with that is: the volatility oscillates way to much. I would expect the volatility to change slow and continuous over time.