Realized wavelet-based estimation of integrated variance and jumps in the presence of noise

0434203 - ÚTIA 2016 RIV GB eng J - Journal Article
Baruník, Jozef - Vácha, Lukáš
Realized wavelet-based estimation of integrated variance and jumps in the presence of noise.
Quantitative Finance. Roč. 15, č. 8 (2015), s. 1347-1364. ISSN 1469-7688. E-ISSN 1469-7696
R&D Projects: GA ČR GA13-32263S
EU Projects: European Commission 612955 - FINMAP
Grant - others:GA ČR(CZ) GA13-24313S
Institutional support: RVO:67985556
Keywords : quadratic variation * realized variance * jumps * market microstructure noise * wavelets
Subject RIV: AH - Economics
Impact factor: 0.794, year: 2015
http://library.utia.cas.cz/separaty/2014/E/barunik-0434203.pdf

We introduce wavelet-based methodology for estimation of realized variance allowing its mea- surement in the time-frequency domain. Using smooth wavelets and Maximum Overlap Dis- crete Wavelet Transform, we allow for the decomposition of the realized variance into several investment horizons and jumps. Basing our estimator in the two-scale realized variance frame- work, we are able to utilize all available data and get feasible estimator in the presence of microstructure noise as well. The estimator is tested in a large numerical study of the finite sample performance and is compared to other popular realized variation estimators. We use different simulation settings with changing noise as well as jump level in different price pro- cesses including long memory fractional stochastic volatility model. The results reveal that our wavelet-based estimator is able to estimate and forecast the realized measures with the greatest precision.
Permanent Link: http://hdl.handle.net/11104/0238359