A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High Frequency Data
|
NBER Working Paper No. 10111
Issued in November 2003
NBER Program(s): AP
It is a common practice in finance to estimate volatility from the sum of frequently-sampled squared returns. However market microstructure poses challenges to this estimation approach, as evidenced by recent empirical studies in finance. This work attempts to lay out theoretical grounds that reconcile continuous-time modeling and discrete-time samples. We propose an estimation approach that takes advantage of the rich sources in tick-by-tick data while preserving the continuous-time assumption on the underlying returns. Under our framework, it becomes clear why and where the usual' volatility estimator fails when the returns are sampled at the highest frequency.
Published: Zhang, Lan, Per A. Mykland and Yacine Ait-Sahalia. "A Tale Of Two Time Scales: Determining Integrated Volatility With Noisy High-Frequency Data," Journal of the American Statistical Association, 2005, v100(472,Dec), 1394-1411.
This paper is available as PDF (287 K) or via email.
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
|
|
|
About
Support
The research activities of the NBER are funded by grants from federal research agencies, by private foundations, and by generous donations from our corporate associates and from private individuals. The NBER is a non-profit, 501(c)(3) organization. For information on supporting the NBER, please contact:
Mr. Denis Healy, Director of Development
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138-5398
ph: 617-868-3900
email: dhealy@nber.org
Close
