Higher Order Realized Power Variations of Semi-Martingales with Applications

34 Pages Posted: 21 May 2014

See all articles by Yuta Koike

Yuta Koike

Tokyo Metropolitan University

Zhi Liu

University of Macau

Date Written: May 19, 2014

Abstract

The realized power variations with even order of a discretely observed semi-martingale have been widely studied in literature, due to some important applications in finance, for example, estimating the integrated volatility and integrated quarticity. However, few works have paid attention to the realized power variations whose power indices are odd. In this paper, we derive some limit theorems for realized variations with odd functions of an Itô semi-martingale on the fixed time interval [0,T], observed discretely at a high frequency. In the continuous case, unlike the realized power variations of even order, for example the quadratic variation, they converge only in distribution (stably) after multiplied by some appropriate factors, which are related to the length of the sampling interval, and the limiting processes consist of centered Wiener integrals and Riemann integrals that play a role as asymptotic biases. The limit theorems for the general case containing jumps have also been derived. An important application of the result is to measure the realized skewness with high frequency data. Simulation studies for various models have been investigated. Finally, we provide some real applications.

Keywords: High frequency data; Itô semi-martingale; Jumps; Realized variations; Stable convergence.

JEL Classification: C13, C15, G10

Suggested Citation

Koike, Yuta and Liu, Zhi, Higher Order Realized Power Variations of Semi-Martingales with Applications (May 19, 2014). Available at SSRN: https://ssrn.com/abstract=2438711 or http://dx.doi.org/10.2139/ssrn.2438711

Yuta Koike (Contact Author)

Tokyo Metropolitan University ( email )

Marunouchi Eiraku Bldg. 18F
1-4-1 Marunouchi
Chiyoda-ku, Tokyo 100-0005
Japan

Zhi Liu

University of Macau ( email )

P.O. Box 3001
Macau

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