Realized wavelet-based estimation of integrated variance and jumps in the presence of noise
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Publication:4619499
DOI10.1080/14697688.2015.1032550zbMATH Open1406.91432arXiv1202.1854OpenAlexW2101234526MaRDI QIDQ4619499FDOQ4619499
Authors: Jozef Barunik, Lukas Vacha 
Publication date: 6 February 2019
Published in: Quantitative Finance (Search for Journal in Brave)
Abstract: We introduce wavelet-based methodology for estimation of realized variance allowing its measurement in the time-frequency domain. Using smooth wavelets and Maximum Overlap Discrete Wavelet Transform, we allow for the decomposition of the realized variance into several investment horizons and jumps. Basing our estimator in the two-scale realized variance framework, we are able to utilize all available data and get feasible estimator in the presence of microstructure noise as well. The estimator is tested in a large numerical study of the finite sample performance and is compared to other popular realized variation estimators. We use different simulation settings with changing noise as well as jump level in different price processes including long memory fractional stochastic volatility model. The results reveal that our wavelet-based estimator is able to estimate and forecast the realized measures with the greatest precision. Our time-frequency estimators not only produce feasible estimates, but also decompose the realized variation into arbitrarily chosen investment horizons. We apply it to study the volatility of forex futures during the recent crisis at several investment horizons and obtain the results which provide us with better understanding of the volatility dynamics.
Full work available at URL: https://arxiv.org/abs/1202.1854
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Derivative securities (option pricing, hedging, etc.) (91G20) Nontrigonometric harmonic analysis involving wavelets and other special systems (42C40) Applications of statistics to actuarial sciences and financial mathematics (62P05)
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Cited In (7)
- Volatility estimation and jump testing via realized information variation
- On the estimation of integrated volatility in the presence of jumps and microstructure noise
- Modeling and forecasting exchange rate volatility in time-frequency domain
- Discrete sine transform for multi-scale realized volatility measures
- Estimation of long memory in volatility using wavelets
- Wavelet-\(L_2 E\) stochastic volatility models: an application to the water-energy nexus
- ESTIMATION OF INTEGRATED COVARIANCES IN THE SIMULTANEOUS PRESENCE OF NONSYNCHRONICITY, MICROSTRUCTURE NOISE AND JUMPS
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