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Duration-Based Volatility Estimation

Torben Andersen (), Dobrislav Dobrev and Ernst Schaumburg

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: We develop a novel approach to estimating the integrated variance of a general jump-diffusion with stochastic volatility. Our approach exploits the relationship between the speed (distance traveled per fixed time unit) and passage time (time taken to travel a fixed distance) of the Brownian motion. The new class of duration-based IV estimators derived in this paper is shown to be robust to both jumps and market microstructure noise. Moreover, their asymptotic and finite sample properties compare favorably to those of commonly used robust IV estimators.

Date: 2009-03
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fmk and nep-mst
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