Measuring and Modeling Risk Using High-Frequency Data

23 Pages Posted: 1 Nov 2008

See all articles by Wolfgang K. Härdle

Wolfgang K. Härdle

Humboldt University of Berlin - Institute for Statistics and Econometrics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS); Vienna Graduate School of Finance (VGSF)

Uta Pigorsch

University of Mannheim

Date Written: August 5, 2008

Abstract

Measuring and modeling financial volatility is the key to derivative pricing, asset allocation and risk management. The recent availability of high-frequency data allows for refined methods in this field. In particular, more precise measures for the daily or lower frequency volatility can be obtained by summing over squared high-frequency returns. In turn, this so-called realized volatility can be used for more accurate model evaluation and description of the dynamic and distributional structure of volatility. Moreover, non-parametric measures of systematic risk are attainable, that can straightforwardly be used to model the commonly observed time-variation in the betas. The discussion of these new measures and methods is accompanied by an empirical illustration using high-frequency data of the IBM incorporation and of the DJIA index.

Keywords: Realized Volatility, Realized Betas, Volatility Modeling

JEL Classification: C13, C14, C22, C52, C53

Suggested Citation

Härdle, Wolfgang K. and Hautsch, Nikolaus and Pigorsch, Uta, Measuring and Modeling Risk Using High-Frequency Data (August 5, 2008). Available at SSRN: https://ssrn.com/abstract=1206222 or http://dx.doi.org/10.2139/ssrn.1206222

Wolfgang K. Härdle

Humboldt University of Berlin - Institute for Statistics and Econometrics ( email )

Unter den Linden 6
Berlin, D-10099
Germany
+49 30 2093 5631 (Phone)
+49 30 2093 5649 (Fax)

Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Unter den Linden 6
Berlin, D-10099
Germany

Nikolaus Hautsch (Contact Author)

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Uta Pigorsch

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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