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Duration-Based Volatility Estimation

  • Torben G. Andersen
  • Dobrislav Dobrev
  • Ernst Schaumburg

We develop a novel approach to estimating the integrated variance of a general jump-diffusion with stochastic volatility. Our approach exploits the relationship between the speed (distance traveled per fixed time unit) and passage time (time taken to travel a fixed distance) of the Brownian motion. The new class of duration-based IV estimators derived in this paper is shown to be robust to both jumps and market microstructure noise. Moreover, their asymptotic and finite sample properties compare favorably to those of commonly used robust IV estimators.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd08-034.pdf
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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd08-034.

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Date of creation: Mar 2009
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Handle: RePEc:hst:ghsdps:gd08-034
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  1. Barndorff-Nielsen, Ole E. & Graversen, Svend Erik & Jacod, Jean & Shephard, Neil, 2006. "Limit Theorems For Bipower Variation In Financial Econometrics," Econometric Theory, Cambridge University Press, vol. 22(04), pages 677-719, August.
  2. repec:oxf:wpaper:264 is not listed on IDEAS
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