Dynamic Integration of Time- and State-Domain Methods for Volatility Estimation

DOI10.1198/016214507000000176zbMATH Open1172.62329arXivmath/0506029OpenAlexW2035465993MaRDI QIDQ5307662FDOQ5307662

Jiancheng Jiang, Jianqing Fan, Yingying Fan

Publication date: 18 September 2007

Published in: Journal of the American Statistical Association (Search for Journal in Brave)

Abstract: Time- and state-domain methods are two common approaches for nonparametric prediction. The former predominantly uses the data in the recent history while the latter mainly relies on historical information. The question of combining these two pieces of valuable information is an interesting challenge in statistics. We surmount this problem via dynamically integrating information from both the time and the state domains. The estimators from both domains are optimally combined based on a data driven weighting strategy, which provides a more efficient estimator of volatility. Asymptotic normality is seperately established for the time damain, the state domain, and the integrated estimators. By comparing the efficiency of the estimators, it is demonstrated that the proposed integrated estimator uniformly dominates the two other estimators. The proposed dynamic integration approach is also applicable to other estimation problems in time series. Extensive simulations are conducted to demonstrate that the newly proposed procedure outperforms some popular ones such as the RiskMetrics and the historical simulation approaches, among others. Empirical studies endorse convincingly our integration method.

Full work available at URL: https://arxiv.org/abs/math/0506029

Mathematics Subject Classification ID

Nonparametric estimation (62G05) Asymptotic properties of nonparametric inference (62G20) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05)

Cited In (14)

• Bias free threshold estimation for jump intensity function
• The econometrics of mean‐variance efficiency tests: a survey
• Double Smoothed Volatility Estimation of Potentially Non‐stationary Jump‐diffusion Model of Shibor
• Convoluted smoothed kernel estimation for drift coefficients in jump-diffusion models
• Variance reduction approach for the volatility over a finite-time horizon
• Jump-robust volatility estimation using dynamic dual-domain integration method
• Bias reduction estimation for drift coefficient in diffusion models with jumps
• Asymptotic normality of convoluted smoothed kernel estimation for scalar diffusion model
• Efficient estimation for the volatility of stochastic interest rate models
• Extension of the random matrix theory to the L-moments for robust portfolio selection
• Testing diffusion processes for non-stationarity
• Threshold reweighted Nadaraya-Watson estimation of jump-diffusion models
• UNIFORM CONVERGENCE RATES OF KERNEL-BASED NONPARAMETRIC ESTIMATORS FOR CONTINUOUS TIME DIFFUSION PROCESSES: A DAMPING FUNCTION APPROACH
• Nonparametric Estimation of Volatility Function with Variable Bandwidth Parameter

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