Range-based estimation of quadratic variation
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Date
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