Bipower variation with jumps and correlated returns

This paper extends the classical work of bipower variation by allowing the return process to be autocorrelated. We propose a method of estimating the return volatility when the price process is described by a fractal Brownian motion with jumps. •We propose a jump robust estimator of volatility for t...

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Bibliographic Details
Published in:Economics letters 2014-12, Vol.125 (3), p.367-371
Main Authors: Duan, Yunpeng, Xue, Yi
Format: Article
Language:English
Subjects:
Bipower variation
Correlation
Correlation analysis
Economic analysis
Estimating techniques
Estimation
Fractal Brownian motion
Jump
Rates of return
Studies
Volatility
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Summary:This paper extends the classical work of bipower variation by allowing the return process to be autocorrelated. We propose a method of estimating the return volatility when the price process is described by a fractal Brownian motion with jumps. •We propose a jump robust estimator of volatility for the correlated returns.•We model correlated returns using fractional Brownian motion.•Our method is robust to stochastic volatility and the rare jumps.•Simulations show that our method outperforms the bipower variation method.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2014.10.018