Volatility and realized quadratic variation of differenced returns : A wavelet method approach
AbstractThis paper analyzes some asymptotic results for an alternative estimator of integrated volatility in a continuous-time diffusion process of high frequency data (used in asset pricing finance). The estimator, which is computationally efficient, is based on the quadratic variation of the second order log-price differences. This is contrary to the well known realized quadratic variation of intra daily returns (which is based on first order log-price differences). This latter is known as realized volatility. Analytically, the asymptotics of the proposed estimator is compared to the usual realized volatility estimators. Lastly, we provide some simulation experiments to illustrate the results.
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Bibliographic InfoPaper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Research Group Working Papers with number F-2008-06.
Length: 21 pages
Date of creation: 01 Aug 2008
Date of revision:
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continuous-time methods; quadratic variation; realized volatility; second order quadratic variation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-25 (All new papers)
- NEP-ECM-2009-04-25 (Econometrics)
- NEP-FMK-2009-04-25 (Financial Markets)
- NEP-MST-2009-04-25 (Market Microstructure)
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