Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2026-09-13
Number: 26-068/III
Author-Name: Simon Donker van Heel
Author-Workplace-Name: Erasmus University Rotterdam
Author-Name: Neil Shephard
Author-Workplace-Name: Harvard University
Title: Filtering without Recursion and Some of Its Uses in Financial Economics
Abstract: We develop a filter for time series, defined at each time t as the minimizer of a discounted convex combination of observed and expected losses. The filter can be estimated by simulation to an arbitrary level of accuracy in O(1) flops at each time point t and can be run for all values t=1,...,T in parallel. These methods are applied to robustly compute a preaveraged price process from the more than 1.5 million trades made on a single financial asset in a single day where the noise's variance is infinite. It yields a flat ''volatility signature'' plot, down to the 1 second level, so the microstructure noise no longer biases the volatility estimate. This is not true when linear methods are employed.
Classification-JEL: 
Keywords: Filtering; High frequency finance; Loss function; M-estimator; Volatility
File-URL: https://papers.tinbergen.nl/26068.pdf
File-Format: application/pdf
File-Size: 6.444.864 bytes
Handle: RePEc:tin:wpaper:20260068