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A Central Limit Theorem for Realised Power and Bipower Variations of Continuous Semimartingales

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  • Ole Barndorff-Nielsen

    (University of Aarhus)

  • Svend Erik Graversen

    (University of Aarhus)

  • Jean Jacod

    (Universtie P. et M. Curie)

  • Mark Podolskij

    (Ruhr University of Bochum)

  • Neil Shephard

    ()
    (Nuffield College, University of Oxford, UK)

Abstract

Consider a semimartingale of the form Y_{t}=Y_0+\int _0^{t}a_{s}ds+\int _0^{t}_{s-} dW_{s}, where a is a locally bounded predictable process and (the "volatility") is an adapted right--continuous process with left limits and W is a Brownian motion. We define the realised bipower variation process V(Y;r,s)_{t}^n=n^{((r+s)/2)-1} \sum_{i=1}^{[nt]}|Y_{(i/n)}-Y_{((i-1)/n)}|^{r}|Y_{((i+1)/n)}-Y_{(i/n)}|^{s}, where r and s are nonnegative reals with r+s>0. We prove that V(Y;r,s)_{t}n converges locally uniformly in time, in probability, to a limiting process V(Y;r,s)_{t} (the "bipower variation process"). If further is a possibly discontinuous semimartingale driven by a Brownian motion which may be correlated with W and by a Poisson random measure, we prove a central limit theorem, in the sense that \sqrt(n) (V(Y;r,s)^n-V(Y;r,s)) converges in law to a process which is the stochastic integral with respect to some other Brownian motion W', which is independent of the driving terms of Y and \sigma. We also provide a multivariate version of these results.

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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2004-W29.

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Length: 35 pages
Date of creation: 01 Nov 2004
Date of revision:
Handle: RePEc:nuf:econwp:0429

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Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, vol. 71(2), pages 579-625, March.
  2. Neil Shephard & Ole Barndorff-Nielsen, 2003. "Econometrics of testing for jumps in financial economics using bipower variation," Economics Series Working Papers 2004-FE-01, University of Oxford, Department of Economics.
  3. Ole E. Barndorff-Nielsen & Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(2), pages 253-280.
  4. Ole E. Barndorff-Nielsen & Neil Shephard, 2003. "Power and bipower variation with stochastic volatility and jumps," Economics Papers 2003-W17, Economics Group, Nuffield College, University of Oxford.
  5. Neil Shephard, 2005. "Stochastic volatility," Economics Series Working Papers 2005-W17, University of Oxford, Department of Economics.
  6. Ole E. Barndorff-Nielsen & Neil Shephard, 2002. "Econometric analysis of realised covariation: high frequency covariance, regression and correlation in financial economics," OFRC Working Papers Series 2002fe03, Oxford Financial Research Centre.
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