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Computation Of Volatility In Stochastic Volatility Models With High Frequency Data

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Author Info

  • EMILIO BARUCCI

    ()
    (Dipartimento di Matematica, Politecnico di Milano, Italy)

  • MARIA ELVIRA MANCINO

    ()
    (DIMAD, Università di Firenze, Italy)

Abstract

We consider general stochastic volatility models driven by continuous Brownian semimartingales, we show that the volatility of the variance and the leverage component (covariance between the asset price and the variance) can be reconstructed pathwise by exploiting Fourier analysis from the observation of the asset price. Specifying parametrically the asset price model we show that the method allows us to compute the parameters of the model. We provide a Monte Carlo experiment to recover the volatility and correlation parameters of the Heston model.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 13 (2010)
Issue (Month): 05 ()
Pages: 767-787

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Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:05:p:767-787

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Related research

Keywords: Stochastic volatility; Fourier analysis; volatility of volatility; leverage component;

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Cited by:
  1. Imma Valentina Curato, 2013. "Fourier estimation of stochastic leverage using high frequency data," Working Papers - Mathematical Economics 2013-04, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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