Template-type: ReDIF-Paper 1.0
Author-Name: Ole E. Barndorff-Nielsen
Author-Workplace-Name: The Centre for Mathematical Physics and Stochastics (MaPhySto). Univeristy of Aarhus, Denmark
Author-Name: Neil Shephard
Author-Email: neil.shephard@nuf.ox.ac.uk
Author-Workplace-Name: Department of Economics, and Nuffield College, Oxford University
Title: Power and bipower variation with stochastic volatility and jumps
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.  
Length:33 pages
Creation-Date: 2003-09-15
Number:2003-W17
File-URL: http://www.nuff.ox.ac.uk/economics/papers/2003/W18/eric_may03.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0318