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Spot Volatility Measurement Using a Change-Point Duration Model in the High-Frequency Market

Author

Listed:
  • Zhicheng Li

    (School of Economics and Trade, Hunan University, Changsha 410079, China)

  • Haipeng Xing

    (Department of Applied Math, Stony Brook University, Stony Brook, NY 11794, USA)

  • Yan Wang

    (Business School, Beijing Normal University, Beijing 100875, China)

Abstract

Modeling high-frequency volatility is an important topic of market microstructure, as it provides the empirical tools to measure and analyze the rapid price movements. Yet, volatility at a high frequency often exhibits abrupt shifts driven by news and trading activity, making accurate estimation challenging. This study develops a change-point duration (CPD) model to estimate spot volatility, in which price-change intensities remain constant between events but may shift at random change points. Using simulations and empirical analysis of Nasdaq limit order book data, we demonstrate that the CPD model achieves a favorable balance between responsiveness to sudden shocks and stability in volatility dynamics. Moreover, it outperforms benchmark approaches, including the classical autoregressive conditional duration model, nonparametric duration-based estimators, and candlestick-based measures. These findings highlight the CPD framework as an effective tool for volatility estimation in high-frequency trading environments.

Suggested Citation

  • Zhicheng Li & Haipeng Xing & Yan Wang, 2025. "Spot Volatility Measurement Using a Change-Point Duration Model in the High-Frequency Market," IJFS, MDPI, vol. 13(4), pages 1-20, October.
    • Handle: RePEc:gam:jijfss:v:13:y:2025:i:4:p:186-:d:1764124
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    References listed on IDEAS

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