Are volatility estimators robust with respect to modeling assumptions?

DOI10.3150/07-BEJ6067MaRDI QIDQ2469643zbMATH OpenOpenAlexFDO

Authors Per Aslak Mykland, Yingying Li

Publication date 6 February 2008

Published in Bernoulli (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0709.0440, https://projecteuclid.org/euclid.bj/1186503478

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)

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.

Recommendations

• Robustness of Fourier estimator of integrated volatility in the presence of microstructure noise
• Estimation of volatility functionals in the simultaneous presence of microstructure noise and jumps
• Jump-robust estimation of volatility with simultaneous presence of microstructure noise and multiple observations
• A unified approach to volatility estimation in the presence of both rounding and random market microstructure noise
• Realized Volatility: A Review

Cites work

• scientific article; zbMATH DE number 3723610 (Why is no real title available?)
• scientific article; zbMATH DE number 1245556 (Why is no real title available?)
• scientific article; zbMATH DE number 2006037 (Why is no real title available?)
• scientific article; zbMATH DE number 1834045 (Why is no real title available?)
• scientific article; zbMATH DE number 936411 (Why is no real title available?)
• A Partially Observed Model for Micromovement of Asset Prices with Bayes Estimation via Filtering
• A Tale of Two Time Scales
• A central limit theorem for normalized functions of the increments of a diffusion process, in the presence of round-off errors
• ANOVA for diffusions and Itō processes
• Approximation des trajectoires et temps local des diffusions. (Approximation of trajectories and local times of diffusions)
• Asymptotic error distributions for the Euler method for stochastic differential equations
• Econometric Analysis of Realized Volatility and its Use in Estimating Stochastic Volatility Models
• Edgeworth series for lattice distributions
• Efficient estimation of stochastic volatility using noisy observations: a multi-scale approach
• Estimating quadratic variation when quoted prices change by a constant increment
• Microstructure Noise, Realized Variance, and Optimal Sampling
• The Distribution of Realized Exchange Rate Volatility
• The pricing of options on assets with stochastic volatilities

Cited in

(27)

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

This page was built for publication: Are volatility estimators robust with respect to modeling assumptions?

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2469643)