Template-type: ReDIF-Paper 1.0
Author-Name: Per A. Mykland
Author-Email: mykland@pascal.uchicago.edu
Author-Workplace-Name: Department of Statistics, University of Chicago, USA
Author-Name: Neil Shephard
Author-Email: neil.shephard@economics.ox.ac.uk
Author-Workplace-Name: Nuffield College, Dept of Economics and Oxford-Man Institute of Quantitative Finance, University of Oxford.
Author-Name: Kevin Sheppard
Author-Email: kevin.sheppard@economics.ox.ac.uk
Author-Workplace-Name: Dept of Economics and Oxford-Man Institute of Quantitative Finance, University of Oxford.
Title: Efficient and feasible inference for the components of financial variation using blocked multipower variation
Abstract: High frequency financial data allows us to learn more about volatility, volatility of volatility
and jumps. One of the key techniques developed in the literature in recent years has been
bipower variation and its multipower extension, which estimates time-varying volatility robustly
to jumps. We improve the scope and efficiency of multipower variation by the use of a more
sophisticated exploitation of high frequency data. This suggests very significant improvements
in the power of jump tests. It also yields efficient estimates of the integrated variance of
the continuous part of a semimartingale. The paper also shows how to extend the theory to
the case where there is microstructure in the observations and derive the first nonparametric
high frequency estimator of the volatility of volatility. A fundamental device in the paper is a
new type of result showing path-by-path (strong) approximation between multipower and the
(unobserved) RV based on the continuous part of the process.
Keywords: bipower variation; jumps; market microstructure noise; multipower variation; nonparametric analysis; quadratic variation; semimartingale; volatility; volatility of volatility.
Classification-JEL: C01; C02; C13; C14; C22; D53; D81
Length: 44 pages
Creation-Date: 2012-02-21
Number: 2012-W02
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2012/mss120221.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:1202