Volatility and realized quadratic variation of differenced returns: A wavelet method approach

Esben Høg ()
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Esben Høg: Department of Business Studies, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark, http://www.asb.dk/staff.aspx?pid=10961

No F-2008-06, Finance Research Group Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: This paper analyzes some asymptotic results for an alternative estimator of integrated volatility in a continuous-time diffusion process of high frequency data (used in asset pricing finance).

The estimator, which is computationally efficient, is based on the quadratic variation of the second order log-price differences. This is contrary to the well known realized quadratic variation of intra daily returns (which is based on first order log-price differences). This latter is known as realized volatility.

Analytically, the asymptotics of the proposed estimator is compared to the usual realized volatility estimators. Lastly, we provide some simulation experiments to illustrate the results.

Keywords: continuous-time methods; quadratic variation; realized volatility; second order quadratic variation (search for similar items in EconPapers)
Pages: 21 pages
Date: 2008-08-01
New Economics Papers: this item is included in nep-ecm, nep-fmk and nep-mst
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