A test for the rank of the volatility process: the random perturbation approach
In this paper we present a test for the maximal rank of the matrix-valued volatility process in the continuous Itô semimartingale framework. Our idea is based upon a random perturbation of the original high frequency observations of an Itô semimartingale, which opens the way for rank testing. We develop the complete limit theory for the test statistic and apply it to various null and alternative hypotheses. Finally, we demonstrate a homoscedasticity test for the rank process.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robin, J.M. & Smith, R.J., 1995.
"Tests of Rank,"
Cambridge Working Papers in Economics
9521, Faculty of Economics, University of Cambridge.
- Jacod, Jean, 2008. "Asymptotic properties of realized power variations and related functionals of semimartingales," Stochastic Processes and their Applications, Elsevier, vol. 118(4), pages 517-559, April.
- Mark Podolskij & Mathieu Rosenbaum, 2011.
"Testing the local volatility assumption: a statistical approach,"
CREATES Research Papers
2011-04, Department of Economics and Business Economics, Aarhus University.
- Mark Podolskij & Mathieu Rosenbaum, 2012. "Testing the local volatility assumption: a statistical approach," Annals of Finance, Springer, vol. 8(1), pages 31-48, February.
- Susanne Ditlevsen & Michael Sørensen, 2004. "Inference for Observations of Integrated Diffusion Processes," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 31(3), pages 417-429.
When requesting a correction, please mention this item's handle: RePEc:aah:create:2012-57. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.