Asymptotic Expansions for High-Frequency Option Data
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Publication:6434191
arXiv2304.12450MaRDI QIDQ6434191FDOQ6434191
Authors: Carsten H. Chong, Viktor Todorov 
Publication date: 24 April 2023
Abstract: We derive a nonparametric higher-order asymptotic expansion for small-time changes of conditional characteristic functions of It^o semimartingale increments. The asymptotics setup is of joint type: both the length of the time interval of the increment of the underlying process and the time gap between evaluating the conditional characteristic function are shrinking. The spot semimartingale characteristics of the underlying process as well as their spot semimartingale characteristics appear as leading terms in the derived asymptotic expansions. The analysis applies to a general class of It^o semimartingales that includes in particular L'evy-driven SDEs and time-changed L'evy processes. The asymptotic expansion results are of direct use for constructing nonparametric estimates pertaining to the stochastic volatility dynamics of an asset from high-frequency data of options written on the underlying asset.
Characteristic functions; other transforms (60E10) Inference from stochastic processes (62M99) Applications of statistics to economics (62P20) Generalizations of martingales (60G48)
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