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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. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, Econometric Society, vol. 71(2), pages 579-625, March.
  2. 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, Royal Statistical Society, vol. 64(2), pages 253-280.
  3. Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9613, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. MEDDAHI, Nour, 2001. "A Theoretical Comparison Between Integrated and Realized Volatilies," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2001-26, Universite de Montreal, Departement de sciences economiques.
  5. ANDERSEN, Torben G. & BOLLERSLEV, Tim & MEDDAHI, Nour, 2002. "Correcting the Errors : A Note on Volatility Forecast Evaluation Based on High-Frequency Data and Realized Volatilities," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2002-21, Universite de Montreal, Departement de sciences economiques.
  6. Ole E. Barndorff-Nielsen & Neil Shephard, 2001. "Econometric Analysis of Realised Covariation: High Frequency Covariance, Regression and Correlation in Financial Economics," Economics Papers, Economics Group, Nuffield College, University of Oxford 2002-W13, Economics Group, Nuffield College, University of Oxford, revised 18 Mar 2002.
  7. Meddahi, Nour & Mykland, Per & Shephard, Neil, 2011. "Realized Volatility," Journal of Econometrics, Elsevier, Elsevier, vol. 160(1), pages 1-1, January.
  8. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers, Economics Group, Nuffield College, University of Oxford 2005-W17, Economics Group, Nuffield College, University of Oxford.
  9. Elena Andreou & Eric Ghysels, 2000. "Rolling-Sample Volatility Estimators: Some New Theoretical, Simulation and Empirical Results," CIRANO Working Papers, CIRANO 2000s-19, CIRANO.
  10. Ole E. Barndorff-Nielsen & Neil Shephard, 2001. "How accurate is the asymptotic approximation to the distribution of realised volatility?," Economics Papers, Economics Group, Nuffield College, University of Oxford 2001-W16, Economics Group, Nuffield College, University of Oxford.
  11. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001. "The distribution of realized stock return volatility," Journal of Financial Economics, Elsevier, Elsevier, vol. 61(1), pages 43-76, July.
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Cited by:
  1. Hao Zhou & Tim Bollerslev & Michael Gibson, 2005. "Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.).
  2. Bollerslev, Tim & Zhou, Hao, 2006. "Volatility puzzles: a simple framework for gauging return-volatility regressions," Journal of Econometrics, Elsevier, Elsevier, vol. 131(1-2), pages 123-150.
  3. 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, Econometric Society 487, Econometric Society.
  4. Ole E. Barndorff-Nielsen & Neil Shephard, 2003. "Econometrics of testing for jumps in financial economics using bipower variation," Economics Papers, Economics Group, Nuffield College, University of Oxford 2003-W21, Economics Group, Nuffield College, University of Oxford.
  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, Econometric Society 273, Econometric Society.

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