Bias-optimal vol-of-vol estimation: the role of window overlapping

DOI10.1007/S10203-021-00349-4zbMATH Open1492.91360arXiv2004.04013OpenAlexW3190329000MaRDI QIDQ2145695FDOQ2145695

Authors: Giacomo Toscano, Maria Cristina Recchioni 

Publication date: 17 June 2022

Published in: Decisions in Economics and Finance (Search for Journal in Brave)

Abstract: We derive a feasible criterion for the bias-optimal selection of the tuning parameters involved in estimating the integrated volatility of the spot volatility via the simple realized estimator by Barndorff-Nielsen and Veraart (2009). Our analytic results are obtained assuming that the spot volatility is a continuous mean-reverting process and that consecutive local windows for estimating the spot volatility are allowed to overlap in a finite sample setting. Moreover, our analytic results support some optimal selections of tuning parameters prescribed in the literature, based on numerical evidence. Interestingly, it emerges that window-overlapping is crucial for optimizing the finite-sample bias of volatility-of-volatility estimates.

Full work available at URL: https://arxiv.org/abs/2004.04013

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zbMATH Keywords

CIR modelhigh-frequency dataCKLS modelbias optimizationstochastic volatility of volatility

Mathematics Subject Classification ID

Financial markets (91G15)

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Cited In (2)

• Estimating volatility on overlapping returns when returns are autocorrelated
• Hawkes-driven stochastic volatility models: goodness-of-fit testing of alternative intensity specifications with S\&P500 data

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