High Frequency Volatility of Volatility Estimation Free from Spot Volatility Estimates

30 Pages Posted: 18 May 2014 Last revised: 21 May 2015

See all articles by Simona Sanfelici

Simona Sanfelici

University of Parma - Dipartimento di Economia

Imma Curato

Ulm University

Maria Elvira Mancino

University of Florence - Department of Economics and Management

Date Written: May 16, 2014

Abstract

We define a new consistent estimator of the integrated volatility of volatility based only on a pre-estimation of the Fourier coefficients of the volatility process. We investigate the finite sample properties of the estimator in the presence of noise contamination by computing the bias of the estimator due to noise and showing that it vanishes as the number of observations increases, under suitable assumptions. In both simulated and empirical studies, the performance of the Fourier estimator with high frequency data is investigated and it is shown that the proposed estimator of volatility of volatility is easily implementable, computationally stable and even robust to market microstructure noise.

Keywords: stochastic volatility, volatility of volatility, high frequency data, microstruc- ture, Fourier analysis

JEL Classification: C13, C22

Suggested Citation

Sanfelici, Simona and Curato, Imma and Mancino, Maria Elvira, High Frequency Volatility of Volatility Estimation Free from Spot Volatility Estimates (May 16, 2014). Available at SSRN: https://ssrn.com/abstract=2437989 or http://dx.doi.org/10.2139/ssrn.2437989

Simona Sanfelici (Contact Author)

University of Parma - Dipartimento di Economia ( email )

Via Kennedy 6
Parma, Parma 43100
Italy

Imma Curato

Ulm University ( email )

Albert-Einstein-Alee 11
Ulm, D-89081
Germany

Maria Elvira Mancino

University of Florence - Department of Economics and Management ( email )

Via delle Pandette, 32
Florence, Firenze 50127
Italy

HOME PAGE: http://www.unifi.it

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