Estimation of the stochastic leverage effect using the Fourier transform method

Imma Valentina Curato

Stochastic Processes and their Applications, 2019, vol. 129, issue 9, 3207-3238

Abstract: We define a non-parametric estimator of the integrated leverage effect as the integrated covariation between the logarithmic asset price and its volatility. In Curato and Sanfelici (2015), a consistent estimator of the leverage effect has been introduced through a pre-estimate of the Fourier coefficients of the volatility. This is a novel approach compared to the ones present in the literature which use a pre-estimate of the spot volatility path. In this paper, we show the asymptotic normality of the Fourier estimator for non-equidistant observations. Moreover, its finite sample properties are analyzed in a simulation study also in the presence of microstructure noise.

Keywords: Fourier analysis; Continuous semi-martingales; Leverage effect; Non-parametric estimation techniques (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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DOI: 10.1016/j.spa.2018.09.001

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