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A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High Frequency Data / Lan Zhang, Per A. Mykland, Yacine Ait-Sahalia.
- Format:
- Book
- Author/Creator:
- Zhang, Lan.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w10111.
- NBER working paper series no. w10111
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- A Tale of Two Time Scales
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2003.
- Summary:
- It is a common practice in finance to estimate volatility from the sum of frequently-sampled squared returns. However market microstructure poses challenges to this estimation approach, as evidenced by recent empirical studies in finance. This work attempts to lay out theoretical grounds that reconcile continuous-time modeling and discrete-time samples. We propose an estimation approach that takes advantage of the rich sources in tick-by-tick data while preserving the continuous-time assumption on the underlying returns. Under our framework, it becomes clear why and where the usual' volatility estimator fails when the returns are sampled at the highest frequency.
- Notes:
- Print version record
- November 2003.
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