Bias optimal vol-of-vol estimation: the role of window overlapping
Econometrics
2021-07-19 v2
Abstract
We derive a feasible criterion for the bias-optimal selection of the tuning parameters involved in estimating the integrated volatility of the spot volatility via the simple realized estimator by Barndorff-Nielsen and Veraart (2009). Our analytic results are obtained assuming that the spot volatility is a continuous mean-reverting process and that consecutive local windows for estimating the spot volatility are allowed to overlap in a finite sample setting. Moreover, our analytic results support some optimal selections of tuning parameters prescribed in the literature, based on numerical evidence. Interestingly, it emerges that window-overlapping is crucial for optimizing the finite-sample bias of volatility-of-volatility estimates.
Keywords
Cite
@article{arxiv.2004.04013,
title = {Bias optimal vol-of-vol estimation: the role of window overlapping},
author = {Giacomo Toscano and Maria Cristina Recchioni},
journal= {arXiv preprint arXiv:2004.04013},
year = {2021}
}