Firm’s Volatility Risk Under Microstructure Noise

Flavia Barsotti () and Simona Sanfelici ()
Additional contact information
Flavia Barsotti: UniCredit S.p.A, Risk Methodologies, Group Risk Methodologies & Architecture, Group Financial Risks, Group Risk Management
Simona Sanfelici: University of Parma, Department of Economics

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2014, pp 55-67 from Springer

Abstract: Abstract Equity returns and firm’s default probability are strictly interrelated financial measures capturing the credit risk profile of a firm. Following the idea proposed in [20] we use high-frequency equity prices in order to estimate the volatility risk component of a firm within a structural credit risk modeling approach. Differently from [20] we consider a more general framework by introducing market microstructure noise as a direct effect of using noisy high-frequency data and propose the use of non-parametric estimation techniques in order to estimate equity volatility. We conduct a simulation analysis to compare the performance of different non-parametric volatility estimators in their capability of i) filtering out the market microstructure noise, ii) extracting the (unobservable) true underlying asset volatility level, iii) predicting default probabilities deriving from calibrating Merton [17] structural model.

Keywords: Default Probability; Credit Spread; Microstructure Effect; Equity Price; Trading Noise (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:sprchp:978-3-319-02499-8_5

Ordering information: This item can be ordered from
http://www.springer.com/9783319024998

DOI: 10.1007/978-3-319-02499-8_5

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().