Jump-robust volatility estimation using dynamic dual-domain integration method

Xu-Guo Ye and Yan-Yong Zhao

Communications in Statistics - Theory and Methods, 2021, vol. 50, issue 5, 1250-1273

Abstract: In this paper, we propose a nonparametric procedure to estimate the volatility when the underlying price process is governed by Brownian semimartingale with jumps. The estimator combines the threshold technique and dynamic dual-domain integration approach for volatility when the price process is driven only by diffusions without jumps. The proposed estimator is consistent and asymptotically normal. A simulation study shows that the proposed estimator exhibits excellent performance over a wide range of jump sizes and for different finite sampling frequencies. A real data application is given to illustrate the potential applications of the proposed method.

Date: 2021
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DOI: 10.1080/03610926.2019.1650183

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