Nonparametric Filtering of the Realised Spot Volatility: A Kernel-Based Approach
University College London; University of Aarhus - CREATES; Cemmap (Centre for Microdata Methods and Practice)
January 27, 2007
A kernel weighted version of the standard realised integrated volatility estimator is proposed. By different choices of the kernel and bandwidth, the measure allows us to focus on specific characteristics of the volatility process. In particular, as the bandwidth vanishes, an estimator of the realised spot volatility is obtained. We denote this the filtered spot volatility. We show consistency and asymptotic normality of the kernel smoothed realised volatility and the filtered spot volatility. The choice of bandwidth is discussed and data-driven selection methods proposed. A simulation study examines the finite sample properties of the estimators.
Number of Pages in PDF File: 31
Keywords: realised volatility, spot volatility, kernel estimation, nonparametric
JEL Classification: C13, C14, C22working papers series
Date posted: February 4, 2008
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