Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56717
Authors: 
Bibinger, Markus
Reiß, Markus
Year of Publication: 
2011
Series/Report no.: 
SFB 649 discussion paper 2011-086
Abstract: 
We propose localized spectral estimators for the quadratic covariation and the spot covolatility of diffusion processes which are observed discretely with additive observation noise. The eligibility of this approach to lead to an appropriate estimation for time-varying volatilities stems from an asymptotic equivalence of the underlying statistical model to a white noise model with correlation and volatility processes being constant over small intervals. The asymptotic equivalence of the continuous-time and the discrete-time experiments are proved by a construction with linear interpolation in one direction and local means for the other. The new estimator outperforms earlier nonparametric approaches in the considered model. We investigate its finite sample size characteristics in simulations and draw a comparison between the various proposed methods.
Subjects: 
asymptotic equivalence
covariation
integrated covolatility
microstructure noise
spectral adaptive estimation
JEL: 
C14
C32
C58
G10
Document Type: 
Working Paper

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