chapter-5-volatility_2007_handbooks-in-operations-research-and-management-science

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1、J.R.BirgeandV.Linetsky(Eds.),HandbooksinOR&MS,Vol.15Copyright©2008ElsevierB.V.AllrightsreservedDOI:10.1016/S0927-0507(07)15005-2Chapter5VolatilityFedericoM.BandiGraduateSchoolofBusiness,TheUniversityofChicagoE-mail:federico.bandi@chicagogsb.eduJeffreyR.RussellGraduateS

2、choolofBusiness,TheUniversityofChicagoE-mail:jeffrey.russell@chicagogsb.eduAbstractWeprovideaunifiedframeworktounderstandcurrentadvancesintwoimportantfieldsinempiricalfinance:volatilityestimationbyvirtueofmicrostructurenoise-contaminatedassetpricedataandtransactioncosteva

3、luation.Inthisframework,wereviewrecently-proposedidentificationproceduresrelyingontheuniquepossibilitiesfurnishedbyassetpricedatasampledathighfrequency.Whilediscussingthesepro-cedures,weofferourperspectiveontheexistingmethodsandfindings,aswellasondirectionsforfuturework.

4、Keywords:High-frequencydata;Realizedvolatility;Marketmicrostructurenoise;Transactioncost;Volatilityandassetpricing;Liquidityandassetpric-ing1IntroductionRecordedassetpricesdeviatefromtheirequilibriumvaluesduetothepres-enceofmarketmicrostructurefrictions.Hence,thevolati

5、lityoftheobservedpricesdependsontwodistinctvolatilitycomponents,i.e.,thevolatilityoftheunobservedfrictionlessequilibriumprices(henceforthequilibriumprices)andthevolatilityoftheequallyunobservedmarketmicrostructureeffects.Inkeepingwiththisbasicpremise,thisreviewstartsfr

6、omamodelofpriceformationthatallowsforempiricallyrelevantmarketmicrostructureeffectstodiscusscurrentadvancesinthenonparametricestimationofbothvolatilitynotionsusinghigh-frequencyassetpricedata.Numerousinsightfulreviewshavebeenwrittenonvolatility.Theexistingre-viewsconce

7、ntrateonworkthatassumesobservabilityoftheequilibriumprice183184F.M.BandiandJ.R.Russellandstudyitsvolatilitypropertiesintheabsenceofmeasurementerror(see,e.g.,Andersenetal.,2002,andthereferencestherein).Reviewshavealsobeenwrittenonworkthatsolelyfocusesonthemeasurementerr

8、orandcharacter-izesitintermsoffrictionsinducedbythemarket’sfinegraindynamics(see,e.g.,Hasbrouck,1996,andStoll,2000).Qu