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Estimating Integrated Volatility Using Absolute High-Frequency Returns

Author

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  • Carla Ysusi

Abstract

When high-frequency data is available, in the context of a stochastic volatility model, realised absolute variation can estimate integrated spot volatility. A central limit theory enables us to do filtering and smoothing using model-based and model-free approaches in order to improve the precision of these estimators. Although the absolute values are empirically attractive as they are less sensitive to possible large movements in high-frequency data, realised absolute variation does not estimate integrated variance. Some problems arise when using a finite number of intra-day observations, as explained here.

Suggested Citation

  • Carla Ysusi, 2006. "Estimating Integrated Volatility Using Absolute High-Frequency Returns," Working Papers 2006-13, Banco de México.
  • Handle: RePEc:bdm:wpaper:2006-13
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    File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B94F17739-7389-9CCA-BDAE-ED5B57DA3717%7D.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Quadratic variation; Absolute variation; Stochastic volatility models; Semimartingale; High-frequency data;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G19 - Financial Economics - - General Financial Markets - - - Other

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