Universiteit Utrecht

Department of Mathematics


Proxies for Daily Volatility



Marcel Visser
(UvA)

26 June 2007

High frequency data are often used to construct proxies for the daily volatility in discrete time volatility models. We introduce a calculus for such proxies, making it possible to compare and optimize them. The two distinguishing features of the approach are (1) a simple continuous time extension of discrete time volatility models and (2) an abstract definition of volatility proxy. The theory is applied to eighteen years worth of S&P 500 index data. It is used to construct a proxy that outperforms realized volatility. Paper available at: http://staff.science.uva.nl/~marvisse/


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