Jump-robust volatility estimation using dynamic dual-domain integration method

In this paper, we propose a nonparametric procedure to estimate the volatility when the underlying price process is governed by Brownian semimartingale with jumps. The estimator combines the threshold technique and dynamic dual-domain integration approach for volatility when the price process is dri...

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Bibliographic Details
Published inCommunications in statistics. Theory and methods Vol. 50; no. 5; pp. 1250 - 1273
Main Authors Ye, Xu-Guo, Zhao, Yan-Yong
Format Journal Article
LanguageEnglish
Published Philadelphia Taylor & Francis 04.03.2021
Taylor & Francis Ltd
Subjects
Domains
dynamic integration
short interest rate
state domain
time domain
Volatility
Volatility estimation
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Summary:In this paper, we propose a nonparametric procedure to estimate the volatility when the underlying price process is governed by Brownian semimartingale with jumps. The estimator combines the threshold technique and dynamic dual-domain integration approach for volatility when the price process is driven only by diffusions without jumps. The proposed estimator is consistent and asymptotically normal. A simulation study shows that the proposed estimator exhibits excellent performance over a wide range of jump sizes and for different finite sampling frequencies. A real data application is given to illustrate the potential applications of the proposed method.
ISSN:0361-0926
1532-415X
DOI:10.1080/03610926.2019.1650183