Estimation of the instantaneous volatility

A. Alvarez, F. Panloup, M. Pontier and N. Savy

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Abstract: This paper is concerned with the estimation of the volatility process in a stochastic volatility model of the following form: $dX_t=a_tdt+\sigma_tdW_t$, where $X$ denotes the log-price and $\sigma$ is a c\`adl\`ag semi-martingale. In the spirit of a series of recent works on the estimation of the cumulated volatility, we here focus on the instantaneous volatility for which we study estimators built as finite differences of the \textit{power variations} of the log-price. We provide central limit theorems with an optimal rate depending on the local behavior of $\sigma$. In particular, these theorems yield some confidence intervals for $\sigma_t$.

Date: 2008-12, Revised 2010-09
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0812.3538

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