Realized Volatility and Multipower Variation

CREATES Research Paper 2009-49

16 Pages Posted: 29 Oct 2009

Date Written: October 27, 2009

Abstract

This paper reviews basic notions of return variation in the context of a continuous-time arbitrage-free asset pricing model and discusses some of their applications. We first define return variation in the infeasible continuous-sampling case. Then we introduce realized measures obtained from high-frequency observations which provide consistent and asymptotically normal estimates of the underlying return variation. The paper discusses applications of these measures for reduced-form volatility modeling and forecasting as well as testing for the presence of jumps.

Keywords: realized volatility, multipower variation, jumps, quadratic variation, volatility estimation, volatility forecasting, jump testing, continuous-time stochastic volatility model

JEL Classification: C22, C51, C52, G12

Suggested Citation

Andersen, Torben G. and Todorov, Viktor, Realized Volatility and Multipower Variation (October 27, 2009). CREATES Research Paper 2009-49, Available at SSRN: https://ssrn.com/abstract=1494955 or http://dx.doi.org/10.2139/ssrn.1494955

Torben G. Andersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Viktor Todorov

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States