An improved two-step regularization scheme for spot volatility estimation
AbstractWe are concerned with the problem of parameter estimation in Finance, namely the estimation of the spot volatility in the presence of the so-called microstructure noise. In  a scheme based on the technique of multi-step regularization was presented. It was shown that this scheme can work in a real-time manner. However, the main drawback of this scheme is that it needs a lot of observation data. The aim of the present paper is to introduce an improvement of the scheme such that the modified estimator can work more efficiently and with a data set of smaller size. The technical aspects of implementation of the scheme and its performance on simulated data are analyzed. The proposed scheme is tested against other estimators, namely a realized volatility type estimator, the Fourier estimator and two kernel estimators.
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Bibliographic InfoPaper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2008-ME02.
Length: 23 pages
Date of creation: 2008
Date of revision:
Spot volatility; Nonparametric estimation; Multi-step regularization; Microstructure;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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- Nielsen, Morten Ørregaard & Frederiksen, Per, 2008. "Finite sample accuracy and choice of sampling frequency in integrated volatility estimation," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 265-286, March.
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