Optimal nonparametric range-based volatility estimation

• Main Authors: BOLLERSLEV, Tim, LI, Jia, LI, Qiyuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: spot volatility; nonparametric estimation; range-based estimation; high-frequency data; decision theory; Econometrics; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/2646; https://ink.library.smu.edu.sg/context/soe_research/article/3645/viewcontent/Decision_av_2023.pdf
• Institution: Singapore Management University

We present a general framework for optimal nonparametric spot volatility estimation based on intraday range data, comprised of the first, highest, lowest, and last price over a given time-interval. We rely on a decision-theoretic approach together with a coupling-type argument to directly tailor the form of the nonparametric estimator to the specific volatility measure of interest and relevant loss function. The resulting new optimal estimators offer substantial efficiency gains compared to existing commonly used range-based procedures.