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A Feasible Central Limit Theory for Realised Volatility Under Leverage

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Author Info

  • Ole E. Barndorff-Nielsen

    ()
    (Department of Mathematical Sciences, University of Aarhus, Denmark)

  • Neil Shephard

    ()
    (Nuffield College, Oxford University, UK)

Abstract

In this note we show that the feasible central limit theory for realised volatility and realised covariation recently developed by Barndorff-Nielsen and Shephard applies under arbitrary diffusion based leverage effects. Results from a simulation experiment suggest that the feasible version of the limit theory performs well in practice.

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File URL: http://www.nuff.ox.ac.uk/economics/papers/2004/W3/leverage.pdf
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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2004-W03.

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Length: 13 pages
Date of creation: 25 Feb 2004
Date of revision:
Handle: RePEc:nuf:econwp:043

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

Related research

Keywords: Euler approximation; Functional central limit theory; Quadratic variation; Realised volatility; Stochastic volatility.;

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References

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  1. Meddahi, Nour & Mykland, Per & Shephard, Neil, 2011. "Realized Volatility," Journal of Econometrics, Elsevier, vol. 160(1), pages 1-1, January.
  2. GHYSELS, Eric & HARVEY, Andrew & RENAULT, Eric, 1995. "Stochastic Volatility," CORE Discussion Papers 1995069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Torben G. Andersen & Tim Bollerslev & Nour Meddahi, 2002. "Correcting the Errors: A Note on Volatility Forecast Evaluation Based on High-Frequency Data and Realized Volatilities," CIRANO Working Papers 2002s-91, CIRANO.
  4. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001. "The distribution of realized stock return volatility," Journal of Financial Economics, Elsevier, vol. 61(1), pages 43-76, July.
  5. Meddahi, N., 2001. "A Theoretical Comparison Between Integrated and Realized Volatilies," Cahiers de recherche 2001-26, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. 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.
  7. 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.
  8. Andreou, Elena & Ghysels, Eric, 2002. "Rolling-Sample Volatility Estimators: Some New Theoretical, Simulation, and Empirical Results," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 363-76, July.
  9. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
  10. Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Labys, Paul, 2002. "Modeling and Forecasting Realized Volatility," Working Papers 02-12, Duke University, Department of Economics.
  11. Ole E. Barndorff-Nielsen & Neil Shephard, 2001. "How accurate is the asymptotic approximation to the distribution of realised volatility?," Economics Papers 2001-W16, Economics Group, Nuffield College, University of Oxford.
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Citations

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Cited by:
  1. 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.
  2. Tim Bollerslev & Michael Gibson & Hao Zhou, 2007. "Dynamic Estimation of Volatility Risk Premia and Investor Risk Aversion from Option-Implied and Realized Volatilities," CREATES Research Papers 2007-16, School of Economics and Management, University of Aarhus.
  3. Bollerslev, Tim & Zhou, Hao, 2006. "Volatility puzzles: a simple framework for gauging return-volatility regressions," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 123-150.
  4. Basel Awartani & Valentina Corradi, 2004. "Testing and Modelling Market Microstructure Effects with an Application to the Dow Jones Industrial Average," Econometric Society 2004 North American Summer Meetings 487, Econometric Society.
  5. Walter Distaso & Basel Awartani & Valentina Corradi, 2004. "Testing and Modelling Market Microstructure Effects with an Application to the Dow Jones Industrial Average," Econometric Society 2004 Australasian Meetings 273, Econometric Society.

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