Range-based estimation of quadratic variation

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2006-11-10T07:44:21Z

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Abstract

This paper proposes using realized range-based estimators to draw inference about the quadratic variation of jump-diffusion processes. We also construct a range-based test of the hypothesis that an asset price has a continuous sample path. Simulated data shows that our approach is efficient, the test is well-sized and more powerful than a return-based t-statistic for sampling frequencies normally used in empirical work. Applied to equity data, we show that the intensity of the jump process is not as high as previously reported.

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Keywords

Bipower variation, Finite-activity counting processes, Jump detection, Jump-diffusion process, Quadratic variation, Range-based bipower variation, Semimartingale theory

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