Are volatility estimators robust with respect to modeling assumptions?

DOI10.3150/07-BEJ6067zbMATH Open1129.62097arXiv0709.0440OpenAlexW3105648670MaRDI QIDQ2469643FDOQ2469643

Authors: Per Aslak Mykland, Yingying Li 

Publication date: 6 February 2008

Published in: Bernoulli (Search for Journal in Brave)

Abstract: We consider microstructure as an arbitrary contamination of the underlying latent securities price, through a Markov kernel $Q$. Special cases include additive error, rounding and combinations thereof. Our main result is that, subject to smoothness conditions, the two scales realized volatility is robust to the form of contamination $Q$. To push the limits of our result, we show what happens for some models that involve rounding (which is not, of course, smooth) and see in this situation how the robustness deteriorates with decreasing smoothness. Our conclusion is that under reasonable smoothness, one does not need to consider too closely how the microstructure is formed, while if severe non-smoothness is suspected, one needs to pay attention to the precise structure and also the use to which the estimator of volatility will be put.

Full work available at URL: https://arxiv.org/abs/0709.0440

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zbMATH Keywords

measurement errorrobustnessmartingalesubsamplingbias correctionrealized volatilitylocal timemarket microstructuretwo scales realized volatility (TSRV)

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Applications of statistics to physics (62P35) Generalizations of martingales (60G48)

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Cited In (27)

• VOLATILITY AND COVARIATION ESTIMATION WHEN MICROSTRUCTURE NOISE AND TRADING TIMES ARE ENDOGENOUS
• A combined filtering approach to high-frequency volatility estimation with mixed-type microstructure noises
• Estimating quadratic variation consistently in the presence of endogenous and diurnal measurement error
• Risk Minimization for a Filtering Micromovement Model of Asset Price
• Bayesian Inference via Filtering Equations for Ultrahigh Frequency Data (I): Model and Estimation
• Ultra high frequency volatility estimation with dependent microstructure noise
• On high frequency estimation of the frictionless price: the use of observed liquidity variables
• Microstructure noise in the continuous case: the pre-averaging approach
• Limit theorems for moving averages of discretized processes plus noise
• Volatility analysis in high-frequency financial data
• A branching particle approximation to a filtering micromovement model of asset price
• Estimating quadratic variation when quoted prices change by a constant increment
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• Efficient estimation of integrated volatility incorporating trading information
• Trading information, price discreteness, and volatility estimation
• A new microstructure noise index
• Integrated volatility and round-off error
• Modeling volatility for high-frequency data with rounding error: a nonparametric Bayesian approach
• Estimation of Leverage Effect: Kernel Function and Efficiency
• Why are quadratic normal volatility models analytically tractable?
• Volatility inference in the presence of both endogenous time and microstructure noise
• A unified approach to volatility estimation in the presence of both rounding and random market microstructure noise
• Quasi-maximum likelihood estimation of volatility with high frequency data
• Model-free approaches to discern non-stationary microstructure noise and time-varying liquidity in high-frequency data
• Parametric and nonparametric models and methods in financial econometrics
• Testing for jumps in noisy high frequency data
• Glivenko-Cantelli theorems for integrated functionals of stochastic processes

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