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Adaptive Realized Kernels

  • Marine Carrasco
  • Rachidi Kotchoni

We design adaptive realized kernels to estimate the integrated volatility in a framework that combines a stochastic volatility model with leverage effect for the efficient price and a semiparametric microstructure noise model specified at the highest frequency. Some time dependence parameters of the noise model must be estimated before adaptive realized kernels can be implemented. We study their performance by simulation and illustrate their use with twelve stocks listed in the Dow Jones Industrial. As expected, we find that adaptive realized kernels achieves the optimal trade-off between the discretization error and the microstructure noise. Nous proposons un nouvel estimateur - les noyaux réalisés adaptatifs - pour la volatilité intégrée dans un cadre théorique combinant un modèle de volatilité stochastique avec effet de levier pour le prix d'équilibre de l'actif et un modèle semi-paramétrique spécifiée à la plus haute fréquence pour le bruit de microstructure. Avant de pouvoir implémenter les noyaux réalisés adaptatifs, certains des paramètres de dépendance temporelle du bruit de microstructure doivent d'abord être estimés. Nous étudions les performances de cet estimateur par simulation et illustrons son utilisation avec des données sur douze titres cotés dans le Dow Jones Industrial. Les résultats de simulation suggèrent que les noyaux adaptatifs réalisés permettent de faire un arbitrage optimal entre l'erreur de discrétisation et le bruit de microstructure.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2011s-29.

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Length: 49 pages
Date of creation: 01 Feb 2011
Date of revision:
Handle: RePEc:cir:cirwor:2011s-29
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  1. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
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