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Realized Volatility and Multipower Variation

Torben Andersen () and Viktor Todorov ()
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Viktor Todorov: Kellogg School of Management, Northwestern University, Postal: Department of Finance, Kellogg School of Management, Northwestern University, Evanston, IL 60208

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper reviews basic notions of return variation in the context of a continuous-time arbitrage-free asset pricing model and discusses some of their applications. We first define return variation in the infeasible continuous-sampling case. Then we introduce realized measures obtained from high-frequency observations which provide consistent and asymptotically normal estimates of the underlying return variation. The paper discusses applications of these measures for reduced-form volatility modeling and forecasting as well as testing for the presence of jumps.

Keywords: realized volatility; multipower variation; jumps; quadratic variation; volatility estimation; volatility forecasting; jump testing; continuous-time stochastic volatility model. (search for similar items in EconPapers)
JEL-codes: C22 C51 C52 G12 (search for similar items in EconPapers)
Pages: 14
Date: 2009-05-01
New Economics Papers: this item is included in nep-ecm and nep-mst
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