IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2610.08801.html

Approximate Design-Based Intervals for Downsampled Cross-Sectional Market Aggregates: A Randomized Design for Bandwidth-Constrained Financial Data Pipelines

Author

Listed:
  • Minmin Zeng

Abstract

Financial institutions routinely downsample cross-sectional options panels to meet bandwidth and cost constraints. The industry default---deterministic Top-$k$ selection by open interest---provides no estimate of the aggregation error it introduces, rendering downstream risk metrics unauditable. We make the identification problem precise. For deterministic rules whose selected set depends only on auxiliary variables and not on the outcome (target-blind rules, of which Top-$k$-by-open-interest is one), the target is not identified from the retained outcomes alone unless bounds or modelling assumptions are imposed; under outcome bounds it is partially identified, with a sharp worst-case interval we characterise in closed form. We propose replacing Top-$k$ with probability sampling whose inclusion probabilities are proportional to open interest, paired with the Hajek ratio estimator and a linearised design-based variance estimator, yielding approximate design-based intervals around every aggregate. Experiments on 80 US trading sessions (211 tickers/day) and 83 sessions of Hong Kong options (131 tickers/day) show that for OI-weighted implied volatility the randomized design reduces mean absolute error by 35% (MAE 5.31 vs. 8.15 at 10% retention; paired $t=6.68$, Cohen's $d=0.75$, moving-block-bootstrap 95% CI $[1.82, 3.96]$), and the sharp worst-case interval available to Top-$k$ is 2.7--6.4$\times$ wider than the sampling interval under oracle bounds, and 9--26$\times$ wider under feasible bounds. Empirical coverage is 91.9% against a nominal 95%. We further document that inclusion probabilities must match the target's influence function, motivating a design-aware framework for production pipelines.

Suggested Citation

  • Minmin Zeng, 2026. "Approximate Design-Based Intervals for Downsampled Cross-Sectional Market Aggregates: A Randomized Design for Bandwidth-Constrained Financial Data Pipelines," Papers 2610.08801, arXiv.org.
  • Handle: RePEc:arx:papers:2610.08801
    as

    Download full text from publisher

    File URL: https://arxiv.org/pdf/2610.08801
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Whitney Newey & Kenneth West, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    2. Peter Carr & Liuren Wu, 2009. "Variance Risk Premiums," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1311-1341, March.
    3. Manski, Charles F, 1990. "Nonparametric Bounds on Treatment Effects," American Economic Review, American Economic Association, vol. 80(2), pages 319-323, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ruan, Xinfeng & Zhang, Jin E., 2021. "The economics of the financial market for volatility trading," Journal of Financial Markets, Elsevier, vol. 52(C).
    2. Bollerslev, Tim & Gibson, Michael & Zhou, Hao, 2011. "Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities," Journal of Econometrics, Elsevier, vol. 160(1), pages 235-245, January.
    3. Yang-Ho Park, 2013. "Volatility of volatility and tail risk premiums," Finance and Economics Discussion Series 2013-54, Board of Governors of the Federal Reserve System (U.S.).
    4. Ammann, Manuel & Buesser, Ralf, 2013. "Variance risk premiums in foreign exchange markets," Journal of Empirical Finance, Elsevier, vol. 23(C), pages 16-32.
    5. Masato Ubukata & Toshiaki Watanabe, 2011. "Market Variance Risk Premiums in Japan as Predictor Variables and Indicators of Risk Aversion," Global COE Hi-Stat Discussion Paper Series gd11-214, Institute of Economic Research, Hitotsubashi University.
    6. Dörries, Julian & Korn, Olaf & Power, Gabriel J., 2023. "How should the long-term investor harvest variance risk premiums?," CFR Working Papers 23-06, University of Cologne, Centre for Financial Research (CFR).
    7. Ruan, Xinfeng & Zhang, Jin E., 2019. "Moment spreads in the energy market," Energy Economics, Elsevier, vol. 81(C), pages 598-609.
    8. Tai‐Yong Roh & Alireza Tourani‐Rad & Yahua Xu & Yang Zhao, 2021. "Volatility‐of‐volatility risk in the crude oil market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(2), pages 245-265, February.
    9. Juan M. Londono & Mary Tian, 2014. "Bank Interventions and Options-based Systemic Risk: Evidence from the Global and Euro-area Crisis," International Finance Discussion Papers 1117, Board of Governors of the Federal Reserve System (U.S.).
    10. Elyasiani, Elyas & Gambarelli, Luca & Muzzioli, Silvia, 2020. "Moment risk premia and the cross-section of stock returns in the European stock market," Journal of Banking & Finance, Elsevier, vol. 111(C).
    11. Matthias Held & Marcel Omachel, 2014. "Up- and Downside Variance Risk Premia in Global Equity Markets," FEMM Working Papers 140009, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    12. Ho, Hwai-Chung & Tsai, Wei-Che, 2020. "Price delay and post-earnings announcement drift anomalies: The role of option-implied betas," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    13. Bams, Dennis & Honarvar, Iman, 2021. "VIX and liquidity premium," International Review of Financial Analysis, Elsevier, vol. 74(C).
    14. Yun, Jaeho, 2020. "Variance risk premium in a small open economy with volatile capital flows: The case of Korea," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 105-125.
    15. Stanislav Khrapov, 2011. "Pricing Central Tendency in Volatility," Working Papers w0168, New Economic School (NES).
    16. Wu, Liuren, 2011. "Variance dynamics: Joint evidence from options and high-frequency returns," Journal of Econometrics, Elsevier, vol. 160(1), pages 280-287, January.
    17. Kanne, Stefan & Korn, Olaf & Uhrig-Homburg, Marliese, 2016. "Stock Illiquidity, option prices, and option returns," CFR Working Papers 16-08, University of Cologne, Centre for Financial Research (CFR).
    18. Arash, Aloosh, 2011. "Variance Risk Premium Differentials and Foreign Exchange Returns," MPRA Paper 40829, University Library of Munich, Germany, revised 18 Aug 2012.
    19. Gebka, Bartosz, 2025. "Explaining the causality between trading volume and stock returns: What drives its cross-quantile patterns?," Economic Modelling, Elsevier, vol. 148(C).
    20. PeiLin Hsieh & Robert Jarrow, 2019. "Volatility Uncertainty, Time Decay, and Option Bid-Ask Spreads in an Incomplete Market," Management Science, INFORMS, vol. 65(4), pages 1833-1854, April.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2610.08801. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: https://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.