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Duration-Based Volatility Estimation

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Author Info

  • Torben G. Andersen
  • Dobrislav Dobrev
  • Ernst Schaumburg

Abstract

We develop a novel approach to estimating the integrated variance of a general jump-diffusion with stochastic volatility. Our approach exploits the relationship between the speed (distance traveled per fixed time unit) and passage time (time taken to travel a fixed distance) of the Brownian motion. The new class of duration-based IV estimators derived in this paper is shown to be robust to both jumps and market microstructure noise. Moreover, their asymptotic and finite sample properties compare favorably to those of commonly used robust IV estimators.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd08-034.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd08-034.

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Date of creation: Mar 2009
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Handle: RePEc:hst:ghsdps:gd08-034

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  1. Barndorff-Nielsen, Ole E. & Graversen, Svend Erik & Jacod, Jean & Shephard, Neil, 2006. "Limit Theorems For Bipower Variation In Financial Econometrics," Econometric Theory, Cambridge University Press, vol. 22(04), pages 677-719, August.
  2. repec:oxf:wpaper:264 is not listed on IDEAS
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Cited by:
  1. Torben G. Andersen & Dobrislav Dobrev & Ernst Schaumburg, 2009. "Jump-Robust Volatility Estimation using Nearest Neighbor Truncation," NBER Working Papers 15533, National Bureau of Economic Research, Inc.
  2. Peter Reinhard Hansen & Guillaume Horel, 2009. "Quadratic Variation by Markov Chains," CREATES Research Papers 2009-13, School of Economics and Management, University of Aarhus.
  3. Filip Zikes & Jozef Barunik & Nikhil Shenai, 2012. "Modeling and Forecasting Persistent Financial Durations," Papers 1208.3087, arXiv.org, revised Apr 2013.

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