Related papers: Volatility of Volatility and Leverage Effect from …
We propose a new estimator for the spot covariance matrix of a multi-dimensional continuous semi-martingale log asset price process which is subject to noise and non-synchronous observations. The estimator is constructed based on a local…
In this paper, we propose a price staleness factor model that accounts for pervasive market friction across assets and incorporates relevant covariates. Using large-panel high-frequency data, we derive the maximum likelihood estimators of…
We consider estimation of the spot volatility in a stochastic boundary model with one-sided microstructure noise for high-frequency limit order prices. Based on discrete, noisy observations of an It\^o semimartingale with jumps and general…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
We show that typical behaviors of market participants at the high frequency scale generate leverage effect and rough volatility. To do so, we build a simple microscopic model for the price of an asset based on Hawkes processes. We encode in…
We propose localized spectral estimators for the quadratic covariation and the spot covolatility of diffusion processes which are observed discretely with additive observation noise. The eligibility of this approach to lead to an…
In this article we consider the volatility inference in the presence of both market microstructure noise and endogenous time. Estimators of the integrated volatility in such a setting are proposed, and their asymptotic properties are…
Volatility measures the amplitude of price fluctuations. Despite it is one of the most important quantities in finance, volatility is not directly observable. Here we apply a maximum likelihood method which assumes that price and volatility…
We present a stochastic volatility market model where volatility is correlated with return and is represented by an Ornstein-Uhlenbeck process. With this model we exactly measure the leverage effect and other stylized facts, such as mean…
A simple method is proposed to estimate the instantaneous correlations between state variables in a hybrid system from the empirical correlations between observable market quantities such as spot rate, stock price and implied volatility.…
A technique for on-line estimation of spot volatility for high-frequency data is developed. The algorithm works directly on the transaction data and updates the volatility estimate immediately after the occurrence of a new transaction.…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
We examine whether model-based spot volatility estimators extracted from traded options data enhance the predictive power of the Heterogeneous Autoregressive (HAR) model for realized volatility. Specifically, we infer spot volatility under…
Volatility estimation is a central problem in financial econometrics, but becomes particularly challenging when jump activity is high, a phenomenon observed empirically in highly traded financial securities. In this paper, we revisit the…
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…
Econophysics and econometrics agree that there is a correlation between volume and volatility in a time series. Using empirical data and their distributions, we further investigate this correlation and discover new ways that volatility and…
This paper offers a new approach to modeling and forecasting of nonstationary time series with applications to volatility modeling for financial data. The approach is based on the assumption of local homogeneity: for every time point, there…
The autocorrelation function of volatility in financial time series is fitted well by a superposition of several exponents. Such a case admits an explicit analytical solution of the problem of constructing the best linear forecast of a…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…