Variance reduction approach for the volatility over a finite-time horizon

Yuping Song, Zheng Sun, Qicheng Zhao and Youyou Chen

Communications in Statistics - Theory and Methods, 2022, vol. 51, issue 11, 3521-3541

Abstract: The volatility is a measure for the uncertainty of an asset’s return and is used to reflect the risk level of a financial asset. In this article, we consider the double kernel nonparametric estimator for the volatility function in a diffusion model over a finite-time span based on high frequency sampling data. Under the minimum conditions, the asymptotic mixed normality for the underlying estimator is derived. Moreover, the better finite-sample performance as variance reduction and even mean squared error reduction of the proposed estimator is verified through a Monte Carlo simulation study and an empirical analysis on overnight Shibor in China.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:taf:lstaxx:v:51:y:2022:i:11:p:3521-3541

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DOI: 10.1080/03610926.2020.1797803

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