Bias-optimal vol-of-vol estimation: the role of window overlapping

Giacomo Toscano () and Maria Cristina Recchioni ()
Additional contact information
Giacomo Toscano: University of Firenze and Scuola Normale Superiore
Maria Cristina Recchioni: Università Politecnica delle Marche

Decisions in Economics and Finance, 2022, vol. 45, issue 1, No 6, 137-185

Abstract: Abstract The simplest and most natural vol-of-vol estimator, the pre-estimated spot variance-based realized variance, is typically plagued by a large finite-sample bias. In this paper, we analytically show that allowing for the overlap of consecutive local windows to pre-estimate the spot variance may correct for this bias. In particular, we provide a feasible rule for the bias-optimal selection of the length of local windows when the volatility is a CKLS process. The effectiveness of this rule for practical applications is supported by numerical and empirical analyses.

Keywords: Stochastic volatility of volatility; High-frequency data; Bias optimization; CIR model; CKLS model (search for similar items in EconPapers)
JEL-codes: C13 C14 C58 G10 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10203-021-00349-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:decfin:v:45:y:2022:i:1:d:10.1007_s10203-021-00349-4

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10203/PS2

DOI: 10.1007/s10203-021-00349-4

Access Statistics for this article

Decisions in Economics and Finance is currently edited by Paolo Ghirardato

More articles in Decisions in Economics and Finance from Springer, Associazione per la Matematica
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().