Power and bipower variation with stochastic volatility and jumps

Ole Barndorff-Nielsen and Neil Shephard ()

No 2003-W17, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: This paper shows that realised power variation and its extension we introduce here called realised bipower variation is somewhat robust to rare jumps. We show realised bipower variation estimates integrated variance in SV models --- thus providing a model free and consistent alternative to realised variance. Its robustness property means that if we have an SV plus infrequent jumps process then the difference between realised variance and realised bipower variation estimates the quadratic variation of the jump component. This seems to be the first method which can divide up quadratic variation into its continuous and jump components. Various extensions are given. Proofs of special cases of these results are given. Detailed mathematical results will be reported elsewhere.

Pages: 33 pages
Date: 2003-09-15
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-fin
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Power and Bipower Variation with Stochastic Volatility and Jumps (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0318

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