Volatility analysis with realized GARCH-Itô models

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

1 Scopus Citations
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Author(s)

  • Xinyu Song
  • Donggyu Kim
  • Huiling Yuan
  • Xiangyu Cui
  • Zhiping Lu
  • And 2 others
  • Yong Zhou
  • Yazhen Wang

Related Research Unit(s)

Detail(s)

Original languageEnglish
Journal / PublicationJournal of Econometrics
Publication statusOnline published - 6 Aug 2020

Abstract

This paper introduces a unified approach for modeling high-frequency financial data that can accommodate both the continuous-time jump–diffusion and discrete-time realized GARCH model by embedding the discrete realized GARCH structure in the continuous instantaneous volatility process. The key feature of the proposed model is that the corresponding conditional daily integrated volatility adopts an autoregressive structure, where both integrated volatility and jump variation serve as innovations. We name it as the realized GARCH-Itô model. Given the autoregressive structure in the conditional daily integrated volatility, we propose a quasi-likelihood function for parameter estimation and establish its asymptotic properties. To improve the parameter estimation, we propose a joint quasi-likelihood function that is built on the marriage of daily integrated volatility estimated by high-frequency data and nonparametric volatility estimator obtained from option data. We conduct a simulation study to check the finite sample performance of the proposed methodologies and an empirical study with the S&P500 stock index and option data.

Research Area(s)

  • High-frequency financial data, Option data, Quasi-maximum likelihood estimation, Stochastic differential equation, Volatility estimation and prediction

Citation Format(s)

Volatility analysis with realized GARCH-Itô models. / Song, Xinyu; Kim, Donggyu; Yuan, Huiling; Cui, Xiangyu; Lu, Zhiping; Zhou, Yong; Wang, Yazhen.

In: Journal of Econometrics, 06.08.2020.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal