32 Pages Posted: 21 Jan 2012
Date Written: January 2012
This paper considers practically appealing procedures for estimating intraday volatility measures of financial assets. The underlying microstructure model accommodates the inherent properties of ultra high‐frequency data with the assumption of continuous efficient price processes. In this model, microstructure noise and trading times are endogenous but do not only depend on the prices. Using the (observed) last traded prices of the assets, we develop a new approach that enables to approximate the values of the efficient prices at some random times. Based on these approximated values, we build an estimator of the integrated volatility and give its asymptotic theory. We also give a consistent estimator of the integrated covariation when two assets (asynchronous by construction of the model) are observed.
Keywords: microstructure noise, ultra high‐frequency data, volatility, covariation, endogenous trading times, asynchronous data, stopping times, martingales
Suggested Citation: Suggested Citation
Robert, Christian Yann and Rosenbaum, Mathieu, Volatility and Covariation Estimation When Microstructure Noise and Trading Times are Endogenous (January 2012). Mathematical Finance, Vol. 22, Issue 1, pp. 133-164, 2012. Available at SSRN: https://ssrn.com/abstract=1989281 or http://dx.doi.org/10.1111/j.1467-9965.2010.00454.x
This is a Wiley-Blackwell Publishing paper. Wiley-Blackwell Publishing charges $38.00 .
File name: j-9965.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.