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Volatility and realized quadratic variation of differenced returns

Author

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  • Esben Hoeg

Abstract

This paper analyzes some asymptotic results for a new estimator of integrated volatility in a continuous-time diffusion process of high frequency data (used in asset pricing finance). The estimator, which is computationally efficient, is based on the quadratic variation of the second order log-price differences. This is contrary to the well known realized quadratic variation of intra daily returns (which is based on first order log-price differences). This latter is known as realized volatility. Analytically, the asymptotics of the proposed estimator is compared to the usual realized volatility estimators. Lastly, we provide some simulation experiments to illustrate the results.

Suggested Citation

  • Esben Hoeg, 2005. "Volatility and realized quadratic variation of differenced returns," Computing in Economics and Finance 2005 333, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:333
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    More about this item

    Keywords

    continuous-time methods; quadratic variation; realized volatility; second order quadratic variation;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets

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