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The SIML estimation of realized volatility of the Nikkei-225 Futures and hedging coefficient with micro-market noise

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  • Kunitomo, Naoto
  • Sato, Seisho

Abstract

For the estimation problem of the realized volatility and hedging coefficient by using high-frequency data with possibly micro-market noise, we use the Separating Information Maximum Likelihood (SIML) method, which was recently developed by Kunitomo and Sato [11–13]. By analyzing the Nikkei-225 Futures data, we found that the estimates of realized volatility and the hedging coefficients have significant bias by using the traditional historical method which should be corrected. The SIML method can handle the bias problem in the estimation by removing the possible micro-market noise in multivariate high-frequency data. We show that the SIML method has the asymptotic robustness under non-Gaussian cases even when the market noises are autocorrelated and endogenous with the efficient market price or the signal term.

Suggested Citation

  • Kunitomo, Naoto & Sato, Seisho, 2011. "The SIML estimation of realized volatility of the Nikkei-225 Futures and hedging coefficient with micro-market noise," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(7), pages 1272-1289.
    • Handle: RePEc:eee:matcom:v:81:y:2011:i:7:p:1272-1289
    DOI: 10.1016/j.matcom.2010.08.003
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    References listed on IDEAS

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    1. Ole E. Barndorff-Nielsen & Peter Reinhard Hansen & Asger Lunde & Neil Shephard, 2008. "Designing Realized Kernels to Measure the ex post Variation of Equity Prices in the Presence of Noise," Econometrica, Econometric Society, vol. 76(6), pages 1481-1536, November.
    2. Zhang, Lan & Mykland, Per A. & Ait-Sahalia, Yacine, 2005. "A Tale of Two Time Scales: Determining Integrated Volatility With Noisy High-Frequency Data," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 1394-1411, December.
    3. Peter Hansen & Jeremy Large & Asger Lunde, 2008. "Moving Average-Based Estimators of Integrated Variance," Econometric Reviews, Taylor & Francis Journals, vol. 27(1-3), pages 79-111.
    4. Yacine Aït-Sahalia, 2005. "How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 351-416.
    5. Hansen, Peter R. & Lunde, Asger, 2006. "Realized Variance and Market Microstructure Noise," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 127-161, April.
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    1. Kunitomo, Naoto & Sato, Seisho, 2013. "Separating Information Maximum Likelihood estimation of the integrated volatility and covariance with micro-market noise," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 282-309.
    2. Naoto Kunitomo & Hiroumi Misaki & Seisho Sato, 2015. "The SIML Estimation of Integrated Covariance and Hedging Coefficient under Round-off Errors, Micro-market Price Adjustments and Random Sampling," CIRJE F-Series CIRJE-F-965, CIRJE, Faculty of Economics, University of Tokyo.
    3. Naoto Kunitomo & Seisho Sato, 2015. "Trend, Seasonality and Economic Time Series:the Nonstationary Errors-in-variables Models," CIRJE F-Series CIRJE-F-977, CIRJE, Faculty of Economics, University of Tokyo.
    4. Naoto Kunitomo & Hiroumi Misaki, 2013. "The SIML Estimation of Integrated Covariance and Hedging Coefficient under Micro-market noise and Random Sampling," CIRJE F-Series CIRJE-F-893, CIRJE, Faculty of Economics, University of Tokyo.
    5. Naoto Kunitomo & Hiroumi Misaki & Seisho Sato, 2015. "The SIML Estimation of Integrated Covariance and Hedging Coefficient Under Round-off Errors, Micro-market Price Adjustments and Random Sampling," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 22(3), pages 333-368, September.
    6. Seisho Sato & Naoto Kunitomo, 2015. "A Robust Estimation of Integrated Volatility under Round-off Errors, Micro-market Price Adjustments and Noises," CIRJE F-Series CIRJE-F-964, CIRJE, Faculty of Economics, University of Tokyo.

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