On Truncated Multi-power Estimator of Integrated Volatility With Noisy High Frequency Data

54 Pages Posted: 12 Feb 2021

See all articles by Chuanhai Zhang

Chuanhai Zhang

Zhongnan University of Economics and Law - School of Finance

Zhi Liu

University of Macau

Haiqiang Chen

Xiamen University

Date Written: October 26, 2020

Abstract

This paper develops the asymptotic theory of the threshold pre-averaged multi-power variation estimation in the simultaneous presence of jumps and market microstructure noise and then proposes an improved estimator for integrated volatility of an Itô semi-martingale based on the obtained theory. This new class of estimation is based on the joint use of pre-averaging multi-power variation estimation in a noisy diffusion setting and the threshold technique, which serve to remove microstructure noise and jumps, respectively. Asymptotic properties of the proposed integrated volatility estimator, such as consistency and associated central limit theorems are also provided. Monte Carlo simulations show that the estimator is robust to both Lévy jumps and microstructure noise and it provides less biased estimation, compared to existing estimators, of the continuous variation in finite samples. We also apply our estimator to some real high frequency financial data-sets.

Keywords: Itô semi-martingale, pre-averaging, threshold estimation, multi-power variation estimation, Lévy jumps, market microstructure noise, high-frequency data

JEL Classification: C14, G21, C22, C53

Suggested Citation

Zhang, Chuanhai and Liu, Zhi and Chen, Haiqiang, On Truncated Multi-power Estimator of Integrated Volatility With Noisy High Frequency Data (October 26, 2020). Available at SSRN: https://ssrn.com/abstract=3719210 or http://dx.doi.org/10.2139/ssrn.3719210

Chuanhai Zhang (Contact Author)

Zhongnan University of Economics and Law - School of Finance ( email )

WenQuan Building, 182# Nanhu Avenue
East Lake High-tech Development Zone
Wuhan, Hubei 430073
China

Zhi Liu

University of Macau ( email )

P.O. Box 3001
Macau

Haiqiang Chen

Xiamen University ( email )

Xiamen, Fujian 361005
China

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