Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2008-01-22
Number: 08-011/4
Author-Name: Charles S. Bos
Author-Email: cbos@feweb.vu.nl
Author-Workplace-Name: VU University Amsterdam
Title: Model-based Estimation of High Frequency Jump Diffusions with Microstructure Noise and Stochastic Volatility
Abstract: When analysing the volatility related to high frequency financial data, mostly non-parametric approaches based on realised or bipower variation are applied. This article instead starts from a continuous time diffusion model and derives a parametric analog at high frequency for it, allowing simultaneously for microstructure effects, jumps, missing observations and stochastic volatility. Estimation of the model delivers measures of daily variation outperforming their non-parametric counterparts. Both with simulated and actual exchange rate data, the feasibility of this novel approach is shown. The parametric setting is used to estimate the intra-day trend in the Euro/U.S. Dollar exchange rate.
Classification-JEL: C11; C14; D53; E44
Keywords: High frequency; integrated variation; intra-day; jump diffusions; microstructure noise; stochastic volatility; exchange rates
File-Url: https://papers.tinbergen.nl/08011.pdf
File-Format: application/pdf
File-Size: 1112138 bytes
Handle: RePEc:tin:wpaper:20080011