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NONPARAMETRIC FILTERING OF THE REALIZED SPOT VOLATILITY: A KERNEL-BASED APPROACH

Published online by Cambridge University Press:  19 June 2009

Dennis Kristensen
Dennis Kristensen*
Affiliation:
Columbia University and CREATES
*
*Address correspondence to Dennis Kristensen, Economics Department, International Affairs Building, MC 3308, 420 West 118th Street, New York, NY 10027, USA; e-mail: dk2313@columbia.edu.
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Abstract

A kernel weighted version of the standard realized integrated volatility estimator is proposed. By different choices of the kernel and bandwidth, the measure allows us to focus on specific characteristics of the volatility process. In particular, as the bandwidth vanishes, an estimator of the realized spot volatility is obtained. We denote this the filtered spot volatility. We show consistency and asymptotic normality of the kernel smoothed realized volatility and the filtered spot volatility. We consider boundary issues and propose two methods to handle these. The choice of bandwidth is discussed and data-driven selection methods are proposed. A simulation study examines the finite sample properties of the estimators.

Type
ARTICLES
Information
Econometric Theory , Volume 26 , Issue 1 , February 2010 , pp. 60 - 93
Copyright
Copyright © Cambridge University Press 2009

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