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Nonparametric Range-Based Double Smoothing Spot Volatility Estimation for Diffusion Models

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  • Jingwei Cai

Abstract

We consider nonparametric spot volatility estimation for diffusion models with discrete high frequency observations. Our estimator is carried out in two steps. First, using the local average of the range-based variance, we propose a crude estimator of the spot volatility. Second, we use usual nonparametric kernel smoothing to reconstruct the volatility function from the crude estimator. By inference, we find such a double smoothing operation can effectively reduce the estimation error.

Suggested Citation

  • Jingwei Cai, 2020. "Nonparametric Range-Based Double Smoothing Spot Volatility Estimation for Diffusion Models," Complexity, Hindawi, vol. 2020, pages 1-7, September.
    • Handle: RePEc:hin:complx:5048925
    DOI: 10.1155/2020/5048925
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