An Improved Two‐step Regularization Scheme for Spot Volatility Estimation |
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Authors: | Shigeyoshi Ogawa Simona Sanfelici |
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Affiliation: | 1. Shigeyoshi Ogawa, Department of Mathematical Sciences, Ritsumeikan University, Kusatsu‐shi Noji Higashi 1‐1‐1, 525‐8577 Shiga, JAPAN Tel: +81 77 561 5103. Email: ogawa‐s@se.ritsumei.ac.jp;2. Corresponding author: Simona Sanfelici, Department of Economics, University of Parma, Via J.F. Kennedy, 6 43125 Parma, ITALY. Tel. +39 0521 032386. E‐mail: simona.sanfelici@unipr.it |
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Abstract: | We are concerned with the problem of spot volatility estimation in the presence of microstructure noise. We introduce an estimator based on the technique of multi‐step regularization. A preliminary form for such an estimator was proposed in Ogawa (2008) and was shown to work in a real‐time manner. However, the main drawback of this scheme is that it needs a lot of observation data. The aim of the present paper is to introduce an improvement to this scheme, such that the modified estimator can work more efficiently and with a data set of smaller size. The technical aspects of implementation of the proposed scheme and its performance on simulated data are analysed. The scheme is tested against other spot volatility estimators, namely a realized volatility type estimator, the Fourier estimator and three kernel estimators. |
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Keywords: | G10 C14 C22) |
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