Overnight GARCH-Itô Volatility Models
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Abstract: Various parametric volatility models for financial data have been developed to incorporate high-frequency realized volatilities and better capture market dynamics. However, because high-frequency trading data are not available during the close-to-open period, the volatility models often ignore volatility information over the close-to-open period and thus may suffer from loss of important information relevant to market dynamics. In this paper, to account for whole-day market dynamics, we propose an overnight volatility model based on It^o diffusions to accommodate two different instantaneous volatility processes for the open-to-close and close-to-open periods. We develop a weighted least squares method to estimate model parameters for two different periods and investigate its asymptotic properties. We conduct a simulation study to check the finite sample performance of the proposed model and method. Finally, we apply the proposed approaches to real trading data.
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Cited in
(4)- Volatility models for stylized facts of high‐frequency financial data
- Statistical inference for GQARCH-Itô-jumps model based on the realized range volatility
- The nonparametric GARCH model estimation using intraday high-frequency data
- Volatility analysis with high-frequency and low-frequency historical data, and options-implied information
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